The Property Industry: where it is and where it needs to go

The Property Industry: where it is and where it needs to go

Australia is certainly a fertile ground for property investment compared to many other parts of the world. I believe the reality is sinking in (albeit very slowly) that there is a very real risk that the pension may not be there for the next generation - it is certainly not large enough for any generation for that matter. So generally, we must invest in something for our future. Fundamentally there are shares or property with property being less volatile than the stock market. We have to be aware though that it is an unregulated industry. Property is not considered an investment security by ASIC (the Australian Securities and Investments Commission).

Unlike regulated industries such as the finance or accounting industry, where companies need to have a license, minimum compliance and education - property marketing companies (known as spruikers) don’t require a minimum entry level education or experience. Marketing investment property, put simply, requires nothing more than the ability to sell. This is why investors must be on guard.

There are many predators due to this, and with so many sharks out there it is hard to find a firm that represents the buyer rather than the developer.

Real estate firms operate in a compliant manner, but we all know what side of the fence they are on. Distinct from property marketing companies who will lead a buyer to think that the property being promoted to them is the best fit and most suitable for them, they will try to make the buyer believe that they are on their side - when far too often this is not the case.

The fundamental structure of any regulated industry is:

  • Barrier of Entry; education and qualifications - basically some minimum training.
  • Adherence to a code of conduct, transparency of vested interests and/or conflicts of interest
  • In possession of and entitled to professional indemnity insurance
  • Required membership to a recognised professional body.

There are two main bodies that are keen for change in the property industry - the most well known one being PIPA, Property Investment Professionals of Australia.

  • Finally, a Government selected regulator appointed to regulate and enforce individuals and companies and associated laws yet to be written - to protect Australian property buyers and investors.

Many people masquerade around pretending to be ethical operators, looking out for their own interest, whilst pretending it is also best for the client. One size does not fit all. Often the property leads the client, rather than the client’s circumstances leading the property selection. Spruikers are often limited to one State, and/or one type of strategy, usually only ‘new’ property, consisting of the terrible stuff like ‘off the plan’ contracts and the less sinister contracts known as ‘house and land’. ‘Off the plan’ is just plain bad, if in a high rise or high density, or in a building with more than 50, or over supplied location, but they are almost always bad for most people for the fact there is a clear and present danger of the buyer being unable to obtain finance at the time of settlement (more about this next time).

In Australia, any unethical business can promote property. There really needs to be adequate barriers of entry introduced to professionalise the industry, and a regulator to regulate property practices. This would go a long way to eliminate the unscrupulous behaviour we see presently, time and time again. It would positively impact the standards associated with property and offer better protection for consumers.

The application of legislation designed for consumer protection is considerably limited as it applies to the property industry and in particular property advice. It is not required that an individual person’s circumstances are considered, nor is it required to provide an explanation regarding the risks associated with property. So this combined with commissions and the non-disclosure of various vested interests to a buyer, fascilitates a feeding ground for spruikers to operate freely.

The Government needs to draft legislation and implement it, to recognise property as a financial product which then would allow ASIC to regulate the industry appropriately.

In summary, more needs to be done to professionalise and actually regulate the property industry. Investors need to be very careful with whom they deal with and buy from. Very importantly, investors need to better appreciate and understand any research undertaken or supplied. They must recognise the importance of conducting thorough research and due diligence to support the choice of location and property.  Never buy on the back of a glossy brochure or solely on information provided by the company representing the seller/ developer.

Stay tuned for my next article where I explain how to spot and avoid property spruikers and solutions available to property investors to reduce risk and improve potential.

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