Regulators such as the Australian Securities & Investment Commission (ASIC) have increased their focus on dodgy property deals in recent times and the Real Estate Buyers Agents Association of Australia (REBAA) has reminded consumers that profitable investments aren’t usually a walk in the park.
“There’s always going to be a spruiker or wealth generator out there promoting their wares, it’s really a general and constant warning to be on your guard about who you trust and where you get your advice from,” REBAA president Rich Harvey told Your Investment Property Magazine.
“You see a lot of the spruikers out there making outlandish claims and I think it’s really important for consumers to be aware that making money is not easy, it takes time and it takes effort. Particularly if the market’s changing and cooling then some of the claims people are making now will be severely tested over the next decade,” Harvey said.
In particular, Harvey said younger buyers are likely at more risk of being taken for a ride and he reminded them not let their dreams override sensible decision making.
“They’re also very aspirational. People in that Generation Y bracket can easily be sold a dream which can quickly turn into a lemon,” he said.
“They’ve got to be very careful with who they decide to listen to and where they get their advice from.”
While Harvey and REBAA have concerns about operators who claim they will deliver significant returns in a short period of time, buyers have also been warned about those who promote quantity of quality.
“A lot of people get caught up in that they have to have 10 properties or five properties or X number of properties.
“It’s a mathematical equation at the end of the day in terms of what you want to achieve when it comes to wealth or income. It’s not about the number of properties, that can have a bearing on it, but a more important point is the quality of those properties.
“You might have one two-bedroom apartment in Potts Point and that could be the equivalent of four houses in a regional area.
“Which one is better? Well they’re going to perform differently but you may end up at the same point, but there are different levels of risk involved.”
Though he is concerned about activities of spruikers and the possibility of them causing people to overleverage, Harvey said recent tightening of lending criteria has come with a positive.
“APRA really has tightened the brakes, so naturally investors are having that forced upon them so they can’t over-gear.
“There’s a lot of spruikers out there that say we know the way around the banks and we can beat them at their own game and try to fudge employment figures or income returns, but you can’t do that.
“At the end of the day APRA is now really digging their heels in and a lot of brokers that I’m speaking to are finding it a lot harder to get approvals.
“Good deals will get approved if you’ve got good savings and tick all the boxes, but the actual volume or quantity of loans you can get have been reduced quite significantly compared to two or three years ago.”
Both REBAA and Harvey are long time proponents of more regulation in the property investment industry and while there are some positive signs in that respect, Harvey said real progress will only be made if regulators are better resourced.
“It’s all about resources. At some point I think ASIC will regulate directly property investment, as to when that might happen I don’t know, but I think they’re moving in that direction.
“The entry barrier to become a selling agent or buying agent is far too low. The bar needs to be raised and it really needs to be raised a lot higher than what it is right now. I’d like to see stronger licensing requirements and stronger training and education requirements around real estate agents and buyers agents.”
