Hot property - handle with care

By PHILIP MACALISTER

It's easy to tell that a property boom is going on. Just look at the number of advertisements for property seminars, promising riches in every suburb.

Some of these ads are kosher, but others are nothing more than get-rich-quick schemes - for the promoters, not the investors.

The explosion of seminars has happened in Australia and New Zealand, but in this country they haven't attracted much attention from our regulators and policemen, such as the Securities Commission and Commerce Commission.

It's a different story on the other side of the Tasman, where the incoming chairman of the Australian Competition and Consumer Commission, Graeme Samuel, waded into the debate this week.

He says the ACCC is particularly concerned that in a very hot property market, "mum and dad' investors and superannuitants are being pressured into joining programmes that promise enormous wealth through property investment.

As a result, the commission plans to enforce misleading conduct laws.

This enforcement isn't restricted to seminar presenters. It also covers professional advisers and financiers, who, it seems, are often involved in the schemes in some form.

One of the areas of concern is the use of dummy bidding at property auctions, which has hit the headlines in New Zealand this year.

Samuel said the ACCC investigation would cover 'two-tier marketing' (one price for locals buying property, and a higher price for investors enticed through seminars and other marketing schemes), advice given by financial consultants, solicitors and valuers, unconscionable conduct by financial institutions, and real estate investment seminars.

But while the regulators may not be as busy in New Zealand, it seems that some of the same issues are arising. The property market is hot, seminars are proliferating and there appear to be increasing links between various parties involved in the industry.

Surprisingly, the policemen in New Zealand seem relaxed about the situation. The Securities Commission's head of enforcement, Norman Miller, says the commission isn't looking at this area.

He says securities laws in New Zealand don't cover land - real estate transactions are dealt with under their own laws.

The Commerce Commission hasn't been inundated with complaints either.

Communications manager Jackie Maitland says the commission has looked at this area, but nothing is happening now and it has no complaints on its books.

One body which is involved is the Advertising Standards Complaints Board.

Its chief executive, Glenn Wiggs, says the board has received a complaint about a "get rich quick advertisement" where the complainant challenged assertions made by the seminar presenter.

Although the authorities seem to be taking little interest in what's happening, there is a huge amount of discussion in the market.

Some people spoken to for this story chose not to go on the record with comments.

Others pointed to websites and discussion forums where the merits - or otherwise - of various seminars are discussed.

James Lockie, of mortgage banker Cairns Lockie, is prepared to express his concerns.

He describes the property seminar area as "Shark City, Arizona".

Lockie says he is well-placed to comment, people who have been to some of these seminars have come to his firm looking for mortgages.

Lockie says there are good seminars, where the presenters give good quality and fairly objective information to those attending.

Others, he says, or using seminars as a way of selling real estate.

He is highly critical of some advertisements, which imply that people can become millionaires by Christmas.

Lockie says that when someone buys a residential property as an investment, they are also entering the service industry and providing accommodation.

"Not everyone is cut out to be a landlord and be fixing blocked toilets and leaking hot water cylinders at 10 o'clock at night."

Lockie also criticises organisations which get people to invest in cities and towns hundreds of kilometres from the investor's home.

One of the beauties of Lockie's personal investments in Auckland, he says, is that he can "drive past them on the way from work every day".

One issue which really winds Lockie up is the claim by some organisations that they can buy residential property at wholesale prices for investors.

He reckons it is contrary to the efficient market theory and the fact that the value of a property is what someone is prepared to pay on the day.

The idea that someone can buy a residential property and get a 12 to 15 per cent yield plus capital growth is unrealistic, he says.

The issue of "wholesale" prices was addressed this year when the Advertising Standards Complaints Board ruled on a complaint.

One property investment seminar promoter complained about another's advertisement which referred to a claim that it had properties with prices "15 per cent or more below registered valuation".

The complainant said many of the properties this business advertised were not even close to 15 per cent or more below registered valuation, and many did not have registered valuations.

The advertiser acknowledged that only three-quarters of its stock met the 15 per cent criterion. It also said that because of the booming market, it sometimes had to wait up to 10 days for a valuation report.

"In the interim, we provide an estimated market value then update the web site when the valuation is received."

The board didn't buy any of these explanations and upheld the complaint.

* Philip Macalister is the editor of online money management magazine Good Returns.

* Email Philip Macalister