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It often starts as a dream investment and can end in tears and debt. We explain the process of two-tier property marketing and highlight some of the pitfalls of buying interstate.
With home prices in many capital cities now beyond the reach of some investors, it is tempting to look further afield. While $300,000 will barely cover the cost of a bed-sit in inner Sydney, on Queensland’s Gold Coast the same amount will purchase a brand new, fully furnished two-bedroom apartment.
Enter the two-tier marketers. It often starts with a cold call by a telemarketing company. They invite you to an investment seminar on negative gearing, property investing or wealth creation. Some companies will even fly you “obligation free” to visit the development. It sounds like a good retirement investment, however in some instances, it’s not.
In many cases buyers are paying a huge premium to fund the expensive marketing campaigns. Aggressive marketers create an artificial market for non-local buyers. In most cases the purchaser is sold on the tax and/or retirement benefits of the deal. Capital gain is also a big drawcard.
It is called two-tier marketing because those involved are selling residential and holiday apartments, typically to interstate buyers, at prices well above fair market rates. For instance, an apartment might have a local market value of $220,000, but is sold interstate for $280,000.
Investors may only realise their mistake when they go to sell the property and discover it is worth far less than the original purchase price. This overvaluing of property is not specific to Queensland holiday destinations either. Two tier marketing can happen in any state, because the marketing company, developer and estate agent rely on interstate buyers not knowing the true value of real estate in the area.
Michael Davoren, president of the Real Estate Institute of Australia, says that two-tier marketing aside, Queensland still offers good investment opportunities for buyers in southern Australia.
“For $500,000 you will get an ordinary house in Sydney whereas in Queensland, you can buy a good house for $300,000 and have $200,000 left to invest or pick up a good little business.”
Mr Davoren says the Gold Coast, the Sunshine Coast, Gladstone, Rockhampton, Hervey Bay, Townsville and Cairns are all good long-term investment markets.
Robert Mellor of economic forecaster BIS Shrapnel says buying interstate, or even in a regional city, can be fraught with risks.
“(Towns and cities) a few hundred kilometres from the capital city typically follow a pattern of flow-on (price rises). But buyers should also look at the demographic patterns. Those areas that enjoy strong population growth or coastal areas where people are buying up holiday homes are going to benefit from flow-on,” he said.
Monique Wakelin, of Wakelin Property Advisory, warns that regional markets are the last to boom and first to slow when times get tough.
“Many rural and regional areas have shown strong growth in recent years as part of the ripple effect that goes hand in hand with strong capital city performance. However they are likely to be more adversely affected when conditions tighten.”
The lesson here with two-tier marketing and buying interstate, say the experts, is to think carefully about any property investment. Do your homework, look at the big picture and be prepared to invest for the long term.
- Before you decide which type of property investment is right for you, prioritise your needs. This should be done in consultation with your accountant, financial advisor and solicitor.
- If you are purchasing an investment property, you should investigate the property and likely returns before making a commitment to go to contract.
- If you are approached by an investment marketing company about an investment that provides you with a guaranteed return or tax benefits, you should seek the independent, informed opinion of your accountant or financial adviser.
- Don’t buy property sight unseen, as photographs or video can never tell the whole story.
- Avoid the temptation to join a property investment scheme because you feel coerced by colleagues and friends.
- Conduct your own research to ensure you are paying the fair market price.
- If you are buying through an investment marketing company or developer, organise an independent valuer to review the market value of the property.
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