Property spruiking is alive and well here in the nations capital. These bottom feeders must have no conscience at all, how do they sleep at night knowing that the person they just sold not one, but two properties to, has no way to settle unless they sell their family home.
It started three weeks ago; I received a call from an accountant asking if I could help a couple that had two Off the Plan purchases due for settlement. They came into the office, he walked very slowly with a stick and had a very distinct limp. I‘m not one to judge or assume but ‘blind Freddie’ could guess that he would most likely be on some sort of pension/compensation.
I ask a lot of questions so I can get to understand my client, [and it’s not just that I’m interested in understanding the whole picture, it is also an ASIC requirement that I do this]. So we chatted about what they bought and when the settlement date was, it turned out they had purchased two apartments, both were < 40 square metres and were in a multi story complex. At this point in the conversation I had two concerns, one was the size of the units – being less than 50m2, with not too many lenders for an appetite for these properties, the second was what we call the 25% rule, and this is where a lender won’t expose themselves to more than 25% of the building. First hurdle was the size, but thankfully ANZ as a competitive lender does like this type of security, so in my mind I’m thinking ANZ as a possible solution until they dropped the first bombshell. They’d been to ANZ and were declined. That made me inquisitive. More questions, and to cut to the chase this is what I discovered…
- He was on a disability pension and had been for many years;
- His lovely wife was casually employed;
- There was no way that they could service any debt, hence ANZ declining their application;
- They couldn’t on-sell the properties without the vendors permission;
- There was a two year rental guarantee, which suggests the sale price was inflated to cover that;
- They probably weren’t worth what they paid for them; and
- They were both over 60
What a disaster!
I suggested that they contact Consumer Affairs in both the ACT and Victoria and at least bring this company to their attention. They won’t though because they’re too embarrassed… [I can understand that].
I would so love to tell you who this company is, but I don’t need the slander/defamation challenge, what I can tell you is they’re not on this list. This is a list of people you’ve used and we’ve seen exceptional service / results from.
Anyway I spoke with them last week and they’ve sought legal advice to discover there is no way out. They are now listing the family home for sale and will be moving to Melbourne to live in one of the units and will tenant the other. Thankfully they had no debt on their family home.
This is a classic example of why the property spruikers need to be regulated, it appals me that someone could put a couple into this sort of position. All the spruiker had to do was ask for a pre approval from a reputable bank / broker and that would have saved these people; but no, greed got in the way.
You know that if one was to call the company they’d probably say that they bought them and it’s the buyer’s responsibility to know what they can and cannot afford. Or they may quote the old Latin saying of Caveat Emptor [buyer beware]. Quite frankly I disagree with both of these statements because I talk to people every day and many cannot say with clarity what they can and cannot afford.
So what’s the message here?
Apart from, “you pay for your education if you’re going to buy anything off the plan”, can you please call my office before committing to any purchase, and we’ll stress test your position for changes in interest rates, potential reduced value on settlement and give you our advice in writing.
A sidenote: You cannot walk away from these contracts, they’re written in such a way that if the developer sells the property below your purchase price you have to pay that gap as well. So their only option here was to settle.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).