Property scams draw warning

The Government should beef up regulation of "unscrupulous property developers", the Consumers' Institute has said.

The institute singles out the group in a submission to the Government's Task Force on the Regulation of Financial Intermediaries.

In a sweeping review, the eight-member task force is looking at the role of everyone - share brokers to real estate agents, bank staff to journalists - in the provision of financial products and advice.

It says the task force should broaden its definition of financial products so "scams", notably via seminar promotions, are included.

Otherwise "unscrupulous property developers" are left "peddling their over-hyped and over-priced investment properties".

The Institute cites Gold Coast property scams involving overpricing, high fees, false promises and high-pressure sales tactics.

"There have been numerous seminar promotions of property investment over the past decade where investors are given very little disclosure or legal protection.

"It is essential that such schemes are covered by regulation."

The task force is reviewing the financial intermediary industry, identifying consumer protection problems and outlining options for reform. It is due to report to Government by mid-year.

The institute said building societies, corporate bonds, finance company debentures and managed funds are covered by weak financial disclosure laws compared to banks.

Investment statements, the main "sales force" document, often contain less information about the financial health of the company than more complicated prospectuses and financial statements - often shunned by novice investors.

Moreover, financial product providers are not giving information that lets investors form an accurate view of how much of their return will be reduced by fees, expenses and tax.

There is a need for specific controls over the financial intermediary industry, the Institute suggests.

It said its research showed that confidence in financial intermediaries is "all too frequently misplaced".

Former Commerce Minister Margaret Wilson launched the task force last August.

Wilson also wanted to take into account the new Australian Financial Services Reform Act and noted the International Monetary Fund had scored New Zealand's regulation of financial intermediaries poorly.