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Wednesday, November 28, 2007

Australia's Real Estate Cartel: Part I

It is astounding in Australia today to contemplate the existence of a fully functioning cartel. In fact many people would only associate cartel-like operations with oil companies or in countries where the rule of law is not at the forefront of society. So what is a cartel and how could they exist in this country? How has this situation been allowed to happen, slipping under the noses of regulatory authorities? The answer to all of these questions are extremely complex and hit at the heart of the failures of governance of all areas of real estate. The aim of this examination of the industry is to expose the issues that have been ignored for too long and put forward a set of solutions to the multi layered problem which will require co-operation between all levels of government.

The first piece in the puzzle involves the fundamental issue of power sharing between the State and Federal Governments. Every State and Territory has its own set of laws covering real estate which can vary significantly. There is not a Federal set of guidelines to govern real estate agencies or real estate agents. and there are completely different training requirements in every State and Territory. This means that in some jurisdictions it is extremely easy, taking only 3 days for a person to be qualified as a real estate agent. This person then has the legal right to advise vendors on the best method of selling their home. That means that the three days course miraculously takes you from novice to industry expert, able to give advice to clients on what is generally their largest asset.

It would seem outrageous to visit a Doctor for medical treatment knowing that all they did to get their qualification was a three day crash course in first aid. Wouldn't it be alarming to know that your Accountant had completed a three day correspondence course in company tax law - never having been formally assessed under exam conditions? How about being represented by a Barrister who had completed a 3 day course in legal practice? All of these examples would be considered totally unacceptable in almost every country in the world, however real estate seems to be the exception. Understanding that each State or Territory has it's own guidelines and that no Federal guidelines exist is the first part in piecing together the evidence of cartel-like behaviour and finding a way in which to transform the real estate industry nationally. The second part is in understanding the training requirements to become a real estate agent as it forms the base upon which every other issue within the industry is built upon.

In the next part of our examination of the Real Estate Cartel in Australia I will discuss the ramifications of the low entry standards in the industry and will start piecing together the lobby groups who actually have a vested interest in maintaining the status quo. I will talk about the groups that benefit financially from this extraordinary situation and start the process of piecing together the links between these groups and the reasons behind their co-operation. This is a must read for all those involved in real estate in any way in this country and it is only when these issues are put into the public forum for open discussion and debate that we will be able to push for change protecting both consumers and the industry as a whole. Michael Marquette

Housing Affordability Worst in 22 Years

Home affordability lowest in 22 years
AUSTRALIANS looking to buy homes are needing the highest portion of family income in 22 years to make average mortgage repayments, according to the Real Estate Institute of Australia (REIA).

The Deposit Power/REIA Affordability report for the September quarter found 36.6 per cent of household income was needed to cover average home-loan repayments. Home affordability dropped in every state and territory, except Tasmania, with a 2.2 per cent decline in the quarter and 8.1 per cent over the previous 12 months.

NSW was the most expensive state with 38.3 per cent of a household’s income needed to meet average repayments, as affordability fell 0.8 per cent in the quarter and 5.4 per cent over the year.

As interest rates continue to rise, as seems likely on the horizon, home affordability is likely to drop even further in the near future. Benefits of schemes such as home savings and land release programs will only appear in the longer term, which means that the new Labor government has it’s work cut out to find a solution that assists the Australian public now. Simon Turner

All Hands on Deck: How Safe is Your Balcony or Deck?

A Melbourne balcony rail collapse that injured three people has prompted a pre-festive-season warning from architects about the safety of Australia's balconies and decks.

Pre-purchase inspections conducted by the Royal Australian Institute of Architect's buyer inspection service revealed that 6per cent of Australian homes had a timber balcony, and 2 per cent of these had the potential to cause life-threatening injuries.

These figures indicate around 8000 balconies in Australia could be life-threatening, and last week 3 people were injured when they fell 7m after a balcony rail collapsed. And this is not the first time: balcony collapses in several states in recent years had resulted in several injuries and deaths.

Coastal properties had the greatest risk because of the harsh environment and corrosion caused to metal fittings.

Clearly, people need to inspect their balconies and decks for rotting timbers and rusting fittings.

Particularly given the approaching festive season, these areas would be used for Christmas drinks, lunches and dinners, and many are likely to be overloaded, with people leaning on balustrades or balcony rails.

Clearly apart from possible injury or death to family members or friends, home owners would be foolish to ignore the legal liability which could arise from a collapsing deck which is proven to be in poor repair.

While balconies and timber decks had become important parts of Australian homes, many timber decks built in the 1960s and 70s were illegal because they had been built using inappropriate timber, some of which was now rotten and unsafe.

Whether you have a balcony or raised deck, whether timber, concrete or steel, please inspect the structure for shaky hand rails and balustrades, rust stains and cracking. If you find faults please take immediate action to repair them or seek professional advice if you are unsure. Simon Turner

The Renter's Dilemma

Rents continues to rise across all areas of Sydney, some areas far more than others, and typically all under the instruction of landlords, and perhaps with “advice” from their estate agent.

With the rises in interest rates, and the never ending increase in a landlord’s outgoings, such as council rates, land tax and strata levies, it is perfectly normal for a landlord to expect to cover these constant increases through the rental income from an investment property. And why not? Every day we read in the papers of the shortage of rental properties, the hysteria associated with large numbers of renters vying for the same property, and to a lesser extent, rental properties “being auctioned” to the highest bidder.

Of concern is the expectation a landlord has in gauging a realistic rental price of their property. The real estate agent managing the property is expected to keep the landlord up to date and ensure the property being managed is attracting a fair market rental. And in most circumstances, this is indeed what agents do.

However, consider an investor living overseas who has a rental property managed by an agent. No doubt that person would be fully aware of the shortage of rental properties and the increasing rents commanded – this is daily news both here and overseas. How realistic do you believe that landlord is in relation to their investment property? How much correspondence do you think the investor has with the agent? The property may not be in a suburb where rental demand is high. The property may also be in need of major repairs.

Typically, if a rental property goes on the market and is not snapped up quickly by a renter, the property is quite possibly overpriced. The agent would normally set the price of the property, after consultation with the landlord.

Unfortunately there are a number of landlords with high expectations in what their property should be attracting in rental income, brought about because of their increased outgoings and of course the media attention (as well as the all too common “agreeable” nature of many agents).

This clearly makes it even harder for tenants to find a new and affordable place to live.

Our advice is, particularly if you are considering vacating and looking for a new property in the early part of the New Year because your lease is ending and the landlord is asking for maybe a 5-10% rental increase:
- The cost and stress of moving far outweighs this increase;
- The beginning of the year is generally the most competitive for tenants;
- Explain to your agent/landlord that you have been a long-term, reliable tenant;
- General wear and tear on a property obviously increases the more tenants that move in and out of a property, it is in the best interest of the landlord to keep an existing tenant
- Offer to sign a longer term lease;
- Many landlords have not been able to increase their rents over the last few years, despite increasing costs, interest rates and a flat market, so it is unsurprising that it is “their turn now”.

Should you have any questions regarding your particular situation, whilst the Office of Fair Trading should be able to advice you of your rights and opportunities, Marquette Turner is more than willing to assist you. Simply call us on 1300 737 778. Simon Turner

Consumer Watch: How Fair is the Office of Fair Trading?

I have had an extremely interesting last couple of weeks in dealing with the NSW Office of Fair Trading. It has resulted in me wondering if it truly is all that fair? I have had cause to email members of the Specialist Support Unit almost daily and getting a response has been like pulling teeth. In fact I have had meetings or discussed the situation with various State, Federal and Territory MP’s and have also spoken with the New South Wales Ombudsman in order to clarify what we can expect as “reasonable” from the NSW Office of Fair Trading and it’s Officers.

A myriad of problems have arisen including bias, where comments have been made by one Officer indicating that guilty until proven innocent is the accepted way of thinking. There has been a complete unwillingness to assist a mother of 7 children in St Helen’s Park, near Campbelltown who as a tenant has been bullied and harassed by a local franchise agency. She is facing the prospect of being homeless just before Christmas and all of this through no fault of her own. This is just one example why major reforms are necessary to the powers, processes and manner in which complaints are handled by the Office of Fair Trading. Changes to training guidelines and compliance assistance for real estate agents are a must and
I will continue to speak with MP’s at all levels of Government to lobby for urgent reform.

It is not too much to expect those policing our industry to return calls, emails and conduct investigations in a timely manner. It is also not too much to expect a “Fair Go” which includes immediate assistance for all people needing urgent care. Surely a mother of 7 children in crisis would be considered urgent enough to be first priority. It’s time to cut through the red tape and the culture of secrecy surrounding the actions of Fair Trading Officers and if you have an Office of Fair Trading horror story please email me with the full details and I will ensure it is passed onto the Minister and other appropriate authorities as soon as possible. Michael Marquette