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05-12-2007 - MILLIONS LOST IN KIWI APARTMENTS |
MILLIONS LOST IN KIWI APARTMENTS
Thousands of investors face financial disaster. Reproduced with permission from www.jenman.com.au
UPDATE. November 2007. A recent auction in Auckland indicates that the city's apartment market is getting worse. Eight out of ten apartments failed to sell and one of those that did sell fetched a price $68,000 below the price the owners had originally paid.
One apartment (which was not sold) attracted a maximum bid of just $40,000.
We hate to say, "We told you so," back when Aussies were being bombarded with ads for Kiwi apartments. But, that's exactly what we warned.
Just remember this adage: When you see or hear a bombardment of advertising for properties in a distant location, these are almost certainly properties that are likely to bomb in the future.
Sadly, it's usually only mug investors who respond and buy from big advertising campaigns. The shrewd investor is probably the one who bid $40,000 for the Auckland apartment.
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by Neil Jenman
Thousands of investors have lost tens of millions of dollars in Auckland's apartment market.
Most investors, many of whom are Australian, are yet to discover the extent of their losses because many of the buildings in which they invested have only recently been completed. It is only when they decide to sell that the investors discover the extent of their losses.
A recent survey has shown that a staggering 80 per cent of investors who re-sell their Auckland apartments are forced to accept less than their original purchase price.
One apartment, for which the owners paid $555,000 was recently sold for $355,000.
The average loss, however, appears to be around $50,000 plus expenses. Given that New Zealand agents charge more than twice as much commission as Australian agents, investors' losses can quickly multiply beyond belief.
For example, an investor who paid $76,000 (for one of Auckland's notorious "shoebox apartments) re-sold it for $44,000. The agent, Martin Dunn, reportedly took a 25 per cent commission ($11,000) leaving the investor with just $33,000. And that still excludes the holding costs and legal fees.
Most Australian investors were lured into the Auckland apartment market by massive advertising campaigns in newspapers and radio. They were told that New Zealand has no stamp duty, no capital gains tax, no land tax and that the rental returns were double or treble the Australian returns.
The advertisements offered investors brand new apartments in Auckland for just a thousand dollars deposit with nothing more to pay for around two years.
"$1000 NOW and then NOTHING… for two years!" screamed the headlines in a series of ads placed by a company called Brick Securities, in Sydney's Sun-Herald newspaper in 2004 and 2005
Priced at $249,000(AUD) each, these apartments were in a complex of 418 apartments known as 'Volt on Queen' (Auckland's main street).
The apartments, which were yet to be built, were sold off-the-plan with promises of "8% plus!" rental returns. "Secure a brand new fully furnished 2 bedroom unit to provide you with additional income, security and future capital growth," said the ads.
Brick Securities Limited, who proudly displayed their membership of the Real Estate Institute of New Zealand in their ads, told investors that the rental returns would cover the cost of a bank loan, even for those who only paid a thousand dollars deposit.
It was an irresistible pitch – pay a thousand bucks, wait two years and the rent would cover the cost of the loan.
That's what tens of thousands of radio listeners heard in Melbourne and Sydney. "The radio was where we got most of our leads," said a former Brick Securities salesperson last week.
The 'Volt on Queen' building is one of several buildings where stunned investors are now discovering they were the victims of misleading advertising and dreadfully deceptive sales spiels.
Those apartments which were touted as wonderful investments are now selling for tens of thousands less than investors paid for them.
For example, a typical $250,000 Volt apartment just sold for $190,000, a loss of $60,000 (plus those mammoth commissions and expenses).
If all 418 'Volt' apartments have fallen in price by $60,000 each, that's a total loss of $25 million.
Surely this nightmare can't be true. But, even if the apartments have only fallen by $25,000 each, the total losses will exceed $10 million. In one building.
So what does the Real Estate Institute have to say about these scams carried out by their member agents?
"People going into these investment apartments should do their homework really well and get some sound advice before they invest in them," REINZ president told the New Zealand media.
In other words, don't believe his agents.
And what about Brick Securities themselves?
Last week, when told of the losses, a former salesman for Brick Securities had a one-word response, "Wow."
He then admitted that he was lucky he didn't buy one himself.
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