The Real Estate Cartels: Part 2

A cartel is a coalition of political or special-interest groups having a common cause, as to encourage the passage of a certain law.

In Australian real estate the cartel is indeed alive and well. I posed the question in part one - "how has this situation been allowed to happen"?

The answer to the overarching problem has two origins:

1. The different guidelines governing real estate in every State and Territory
2. The different level of training required to be an agent in every State and Territory

The formation of the Commonwealth of Australia in 1901 gave the States the power to regulate real estate. The States made little if any effort to pass uniform laws governing the industry and as a result we have a mish mash of requirements across the country. There is the Office of Fair Trading in NSW which is charged with the responsibility of looking after real estate agents in NSW.

There are equivalent bodies in every State and Territory and co-operation between these departments seems limited at best. Therefore the laws under which agents operate and the training required for real estate have been vastly different across the country since Federation. Bringing the States and Territories together and gaining agreement for a National system has been impossible to achieve.

Like any industry lobby groups act to alter decisions in favour of themselves. Each State has a Real Estate Institute and there is also a National Body. The Real Estate Institute of NSW has always been a major advisory body to the NSW Government when decisions have been made to alter the requirements of real estate agents or the real estate industry.

The Real Estate Institute of NSW like any organisation relies on the money it receives from memberships from real estate agents and other related bodies and as such it would unwise of them to get offside with a large number of agents by pushing for reforms which would revolutionise the industry - reforms which might be unpopular with their paying members and thus reduce the amount of money received in the form of annual memberships. Even worse would be to get a major franchise chain like LJ Hooker or Ray White offside as the risk to membership monies would be all too great.

So in understanding who is acting to advise and lobby the Office of Fair Trading and other Government bodies we start to see the cracks start to appear in the assurance of the integrity of any advice. It is also important to note that the Real Estate Institute in each State is a major training organisation, making considerable money from providing training courses like the Certificate of Registration and the Real Estate Licensing programs.

Would it be in the interest of these bodies to advise the Government in every State and Territory to form a national system? By doing so each State and Territory Body would be unnecessary and in doing so they would all be out of a job. Would it be in their interest to advise the Government to increase the educational standard of real estate entrance to Bachelor level, thus reducing their training revenues and moving education across to Universities?

As we begin to pull the process apart it becomes very apparent that the entire advisory system has self interest at heart and changing the status quo will be extremely difficult indeed. It takes just one person to start a revolution and as we continue to examine and expose the real estate cartel next week we will look more closely at the influence of the large franchise chains and existing real estate agents in maintaining the status quo. In doing so a National Forum in 2008 may be possible and true change as part of the "Education Revolution" might be just around the corner.

Michael Marquette
michael@marquetteturner.com.au

Education Revolution: School Visit Update

Last week each of us at Marquette Turner committed ourselves to visiting one Public and one Private School within the week. We are awaiting confirmation of the times from the schools and will let you know more as soon as we can. Michael Marquette

Latest Market Round-up

The latest figures just released by the Australian Bureau of Statistics for the month of October, reveal the following:

· Growth in retail sales revenue dropped to just 0.2% in October
· New dwelling approvals also disappointed in October, although the 2.8% decline followed on from an unusually strong 6.8% jump in September.
· The volatile apartments sector was behind the fall, dropping 5.5% after a 17.8% hike in September.
· But in good news for the housing sector, new private house finance increased 0.9%, a result that Westpac economics says points to an “unambiguous upturn” in the broader housing sector.

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

The House of 2020: An Education Revolution, Marquette Turner style

Following the lead of Prime Minister elect Kevin Rudd and the new Labor Caucus each Director or Partner of Marquette Turner will be visiting one Government and one Private School by next Wednesday.

We are determined to do our part in assisting primary school children to start developing an understanding of real estate, with a particular emphasis on “green living” and “environmentally friendly homes”.

In next week’s E-Magazine we will report back on the feedback we received and announce the details of our “Year 2020 Green Home” competition where there will be prizes at different levels including the school, class and individual who comes up with the best all round “2020 Green Home”. This will be an annual Marquette Turner initiative and we are incredibly excited about helping to create a greener Australia.

Michael Marquette

Supply & Demand

When you market your property, you need to employ a strategy that can run counter to your emotional perception of the home’s value.

This sometimes means listing at a price far below what you have emotionally anchored upon.

Like any commodity, a home’s price will follow supply-and- demand trends. In theory, custom homes in desirable neighborhoods should hold their value. Other properties should be discounted depending on how many similar homes or untis are on the market.

Every market is different, though. If there are no "bites" even after only a week of marketing, then drastic action is required. Most agents will wait until week 4 (or after the auction!) to tell you that, in actual fact, the good news that they had been telling you no longer applies.

Do not wait until your property is stale before adjusting the strategy as by then you may have missed the boat. This also requires you as a vendor to be pragmatic and commercial (but not bullied of course into accepting a price that you are unhappy with). Simon Turner

Landlord Insurance

I have just received a notification from my property manager suggesting I take out landlord’s insurance for an investment property I have recently bought. I already have building, contents and public liability cover. Is this just another unnecessary product that I’m probably already covered for?

No it isn’t just another unnecessary product! One of the biggest mistakes I see is investors assuming that a standard home and contents policy will cover them for any eventuality. The reality is that there are circumstances that are unique to investors as opposed to home buyers. The type of coverage landlord’s insurance gives relates to events such as rental default or any accidental or malicious damage caused by tenants. The cost of this protection is very little compared with the potential losses it covers. Simon Turner

A Real Estate Education Revolution

An “Education Revolution” has been at the heart of "Kevin 07" campaigning and what education could mean under a Labor Government. The question is what this could mean for real estate?

I have some very strong views on the current training requirements for real estate agents in New South Wales and would like to think that 2008 will be the year that truly brings about a revolution for this industry. The only problem is that Federal laws do not govern the real estate industry and every State or Territory has its own set of guidelines. Most of them are fairly similar, however they are different enough to make the process of operating legally across the entire country almost impossible for any one agent or agency.

There are three main initiatives which would constitute an “Education Revolution” in 2008 for me. Firstly, a national set of guidelines under which all real estate agents operate would be an enormous step forward. The Property, Stock and Business Agents Act 2002 (NSW) governs real agents only in NSW – a Federal Act covering Australia would be wonderful but of course this would require co-operation between the Federal, State and Territory Governments.

Secondly, a national approach to the “Certificate” requirements for all real agents is essential. A completely revised entry program for all new agents must require more than a 3 day course, which currently fails to provide the basic skills required to succeed in the industry. We need to totally ban correspondence entry courses which require only a mailed assessment task. I know of many real estate agents who have simply printed off the answers from a friend and not completed a single minute of study when completing their Certificate of Registration.

Thirdly, a national approach and total overhaul of the current Licensing requirements is a must. Currently in NSW there are multiple providers of Licensing programs which vary in length of time from less than one week to up to 2 years. Assessment is inconsistent and there is a culture of “pay and pass”. A was told recently of a student studying the licensing program at TAFE who was passed to avoid the administration nightmare of failing him/her (Identity Protected). The teacher was unable to fail the student who had not turned up to class or had left the class early almost every night. To make matters worse the student did not complete assessment tasks on time and still received a pass. This system is resulting in sub-standard agents with poor knowledge and the big losers are the general public and the industry as a whole.

The real estate industry is struggling to lift its image and yet bodies like the Real Estate Institute of New South Wales fail to push for reform in such basic areas. To truly enjoy an “Education Revolution” the real estate industry requires a complete overhaul, necessitating a “clean slate approach” to rebuilding the educational requirements of the industry to attract people who would otherwise choose other consultant roles. The status quo will result in the continuation of real estate as a dumping ground for those who have failed elsewhere and have nowhere else to go.

The annual turnover of agents is around 80% (first year agents). This attrition rate is completely unacceptable and exemplifies the failure of real estate training as it now stands. By lifting the calibre of real estate newcomers we will lift the image of the industry.

Michael Marquette

2008: The Real Estate Year Ahead

2008 is set to be an interesting year in so many ways. We are looking at further interest rate rises as inflationary pressures force the Reserve Bank to tighten monetary policy. Further increases in the cost of oil and grocery's are likely to put pressure on prices for consumers and low unemployment will continue to fuel spending.

The big questions are how high will interest rates go and who can we blame for the increase? There is no simple answer to the question, however I believe interest rates will increase to 9-9.5% and it would be unlikely to reach double digits. The Reserve Bank’s independence means that increases in rates will be made without political bias and will be in the best interests of the country as a whole.

The Australian economy has enjoyed 16 years of consecutive growth which means the first 5 of those were under a Labor Government, followed by 11 under the Coalition. Regardless of which party is in power after Saturday interest rates will increase in 2008 and Australians should be tightening their belts and avoiding excess.

The top end of the market is booming and will continue to boom in 2008. The top end of the market has come through 2007 unaffected, with units and low-end property prices steadying, although many buyers are carefully considering their decisions and taking their time to make offers.

This leads us to yet another question – Will 2008 be a good time to sell? In 2007 most vendors have made the decision to move based on lifestyle factors and financial pressures rather than the realization of capital gain. 2008 looks like continuing that trend.

There are buyers at every level of the market, however, prices are steady and should continue to be the same over the next 12 months. Top end property and those in the Sydney’s West will be the exception in 2008. We will continue to see records set in Sydney’s beachside and harbourside suburbs and suburbs in Sydney’s “mortgage belt” like Glenmore Park, Blacktown and Liverpool will struggle under the weight of further interest rate increases. This should provide some excellent buying opportunities for those with the capacity to purchase with foreclosures likely to reach levels not seen since the early 1990’s. Rental prices will continue to increase in 2008. Increased yields will please investors who have struggled for so long and chosen shares over property. This could mean further movement into bricks and mortar which is a positive thing for those selling in 2008.

All in all the year looks like being a tough one for those already feeling the pinch and the rich will continue to get richer. The need for an immediate solution to housing affordability will become even more apparent and investment in infrastructure to connect the regional cities to our capitals will require a solution that involves full co-operation between the State and Federal Governments. Maybe a Labor Federal Government will be able to better co-operate with the State Labor Governments? Michael Marquette

Housing Stress Continues

Housing affordability has been talked up by both major parties as a key fixture of the election campaign. It is, however, an issue that will not simply go away as quickly as the election battle.

For an increasing number of Australians rising interest rates and inflation on the back of rising fuel and grocery belts, are tightening many belts. Those with mortgages are being consumed by mortgage stress, and with low vacancy rates fuelling big spikes in rents, tenants are not being left behind either.

A report by the National Centre for Social and Economic Modelling and the Housing Industry Association (HIA) predicts that the number of households spending more than a third of income on rent is set to rise over the next three years. There are expected to be another 230,000 households facing rental stress over the next three years, and that takes the total in Australia to three quarters of a million.

Chris Lamont of the HIA states that almost one in two tenants throughout both metropolitan Australia and regional Australia, are really struggling just to put a roof over their head.
Whilst traditionally rental stress has been more an issue in the major capital cities, we have to now take into consideration that a lot of regional centres, as a consequence of the mining boom rents have also been rising at very fast rates. In some areas, wages have kept up with those increases, in most, they haven't.

Regardless of which party occupies the powerful side of parliament following the federal election, the rental crisis is really going to rear its ugly head at the beginning of 2008.

The majority of tenants are looking for new properties at the beginning of the year, and given that the market is already very inflated and strained in addition to a vacancy rate at its lowest on record at 1.7%, the stress is only going to get worse.

Some form of targeted assistance, perhaps in the form of a rental rebate scheme would certainly assist many and deflate the issue, as would further assistance to first home buyers.
Unfortunately, it’s definitely time to batten down the hatches and tighten those purse strings as such relief will unlikely be forthcoming quickly enough. Simon Turner

The Zero Energy Tower

Burj Al-Taqa: Middle Eastern Zero-energy Tower

The recent building boom in the Middle East has given rise to some of the world’s most extravagant and innovative buildings. The latest proposed tower to sprout up among the ever-changing skyline is the Burj Al-Taqa Energy Tower for the Middle East.

Designed by Eckhard Gerber and cutting a 322 meter high silhouette, this commercial high rise will produce zero emissions and use sun, wind and water to create all of its own energy. The 68-story structure will use natural air conditioning based on Iranian wind towers which draws wind in and down to cool interiors. Gerber’s cylindrical design uses this principal to ventilate the tower.

A central atrium will provide fresh air inflow. The incoming air will be pre-cooled with seawater, dispersed throughout the building and ventilated through a double-skin glass façade. Tubing throughout the ceilings will run cool water for additional radiant thermal comfort. Solar gain control is dependent on a new type of vacuum glazing that is still in development but expected to be over 60% more efficient than current technology.

A rotating solar shield covering one sixth of the building circumference will provide shade at the highest incidences and use an integrated photovoltaic array to capture the sun’s energy for electricity. And yes, that is a wind turbine on top. The Darrieus-type rotor, together with two more roof-mounted photovoltaic arrays and a floating array in the nearby sea, will equip the Burj Al-Taqa to meet its energy needs. Any excess electricity will applied to generating more energy – extracting hydrogen from seawater for fuel cells.

Gerber’s ambitious projections for the Burj Al-Taqa depend on unproven techniques and untested materials. However, if the Energy Tower for the Middle East lives up to expectations, it will require 60% less energy than comparable buildings, produce no CO2 emissions and, from a lofty height at number 22 on the list of the world’s tallest buildings, can boast complete independence from non-renewable energy. Read more Simon Turner

Share the Burden: Housing Affordability Made Easier

Person to person loans for home buyers

Affording property could suddenly be made much easier with Home Equity Share matching home buyers with investors.

To be precise HES brings together buyers who can afford monthly payments but not a 20% down payment, and investors who want to get into real estate but don't want to become landlords or make monthly payments.

Potential home buyers post a profile listing their preferences, including the area they want to buy in, and the price range they're looking for. They're automatically matched with compatible investors, come to an agreement and sign a preliminary commitment. This allows the buyer to become pre-approved for a loan, and to start looking for a property. Once the buyer and investor agree on a property, the investor provides the down payment, the buyer arranges a mortgage for his home and moves in. At the end of a specified agreement term—usually three to seven years—the buyer can purchase the investor's interest in the property, or they can sell the house share its appreciation in value.

For more information visit: www.homeequityshare.com Simon Turner

The Great Land Sale

Commonwealth Sell-Off of Land to Help Housing Affordability Crisis

The Federal Government has announced its long-awaited plan to sell off Commonwealth land to address the growing housing affordability crisis. It has promised to speed up the sale of enough blocks for 10,000 houses across the country by 2010.

For the cynical amongst you, it may be interesting to know that the first property that will be available in Sydney is part of an estate in the John Howard’s wobbly seat of Bennelong. For those less cynical but nonetheless concerned about housing affordability, such houses are already on the market for $790,000.

A further 700 dwellings on the banks of the Parramatta River in Ermington will be disposed of by the Government in 2008 as part of the plan that would provide enough land for 6000 dwellings in western Sydney.

Prime Minister John Howard announced plans similar to those of Opposition Leader, Kevin Rudd, to spend $500 million on infrastructure for community facilities such as playing fields and libraries around new housing on the city fringes and in urban areas.

The most likely area to be sold first is the former Naval Stores Depot in Ermington, which lies in Bennelong, where the developer Stockland has four-bedroom "manor homes" on the market.

Additional sites include the Ingleburn Army Camp in South West Sydney and the Schofields aerodrome in North West Sydney. The Ingleburn site would provide enough land for 4680 dwellings and would require $75 million worth of remediation to be covered by the Commonwealth.

The final two sites in Sydney are West Wattle Grove in south-western Sydney and Bringelly Radio Receiving Station. Simon Turner

The Rental Bond Con

A 34-year-old woman who accumulated $47,420 by tricking more than 200 victims in a crime spree was last week given a suspended jail sentence.

Magistrate Pat O'Shane said the woman had taken bonds from people, purporting to be leasing properties she did not own. Among her victims were financial institutions.

The magistrate stated that the woman had been "naive" as she had dealt with people in her own home, used her own name and deposited all the monies into a single personal bank account. Nevertheless, she had exhibited "a high degree of planning and criminal conduct".

Ms O'Shane accepted Prince had had a troubled history and had suffered from a bipolar mental disorder for which she had had inadequate medication, and at times she had not kept up with the medication.

You Might Be At Risk of Losing Thousands of Dollars - Vendors Beware!

In the last 24 hours I have been contacted by a real estate agent who had an issue with Marquette Turner. Well, the issue wasn’t so much with us as it is self-serving. See, the agent who will remain nameless was not actually thinking of his client’s interests at all. He was far from being client focused and had only self-interest at heart. I will summarize the situation which really begs the questions – Is this person really doing the best by his clients? Is he really trying to achieve the highest sale price for every property? How do you deal with a person like this in the industry?

This is a true Story:

I received a telephone call yesterday from a well-known real estate agent on the Lower North Shore threatening to report myself and Christine Watson to the NSW Office of Fair Trading for speaking to a client of his. I am quite serious when I say this and am I discussing the Lower North Shore in Sydney – not North Korea. He was furious that we had spoken to his client who has been trying to sell her property for quite some time and she had noticed the hugely successful auction that we had conducted just a couple of doors down from her property – in fact the two properties are extremely similar and in terms of price are also quite similar. The lady had called our office to ask about the sale and had requested to meet with us. She also had no idea if she was in an exclusive agreement as she believed it had run out. To further complicate the situation she is based in Melbourne and the property had been leased for over twenty years.

I recently met with her on a trip to Melbourne and discussed her situation and also resolved the issue that she was still under an exclusive agreement with the other agency. She had signed an agreement for 90 days after auction – taking the agreement to a staggering 4 months! At Marquette Turner this would just not happen as we consider that length of time to be quite excessive. In the real estate industry an agent is not allowed to approach a client whilst he or she is in an exclusive agreement with another agent, however the client is most definitely able to make contact and ask questions. If the client employs a second agent during an exclusive sales agreement with another agent and the property is sold then the client may be forced to pay two commissions. I explained this situation to the lady and gave her the advice she required.

During the phone call to me the agent in question un-leased a barrage of personal insults about his client, including that she had been a shocking client for some twenty plus years – in his words “ a slum landlord”. He went further to say that he had arranged for the renovation of the apartment at considerable time cost to him and that the sale did not require another agent just a realistic vendor who would accept an offer of $530,000. This by any account is well below what I believe the value of the apartment to be and well below the price expectation of his client. In other words he was only worried that he might not get his commission as the agreement is almost over, and he had failed to sell the apartment and had lost the confidence of his client who was looking to us (Marquette Turner) for an answer to her predicament.

The sad thing about this situation is that the agent was only interested in getting a sale – not a sale at the highest price – but a sale at any price. This is surely not in the best interest of his client and is the sort of behavior that we can only hope is rare. Unfortunately he also claimed to have been in the industry for over thirty years so I was left wondering how many other sales he has adopted this approach and attitude toward? This story is incredibly important in informing would be vendors of the underlying motive that might be driving their agent in giving them what is supposed to be professional advice. At what price is this advice really coming at? When considering the total commission paid to the agent and the lost money in a low sale price it could amount to tens of thousands of dollars – vendors beware!

Michael Marquette

The Lies and Lows: Consumers Losing Out

It has been an interesting last week in real estate with so much going on with the Federal election, interest rates and auction clearance rates to name just a few.

To add to the mix we received a complaint from the NSW Office of Fair Trading which had been lodged by a former landlord. Marquette Turner takes extreme care in everything we do and we accept the fact that we are always striving to improve and strengthen our systems and procedures to make our service the very best possible. We realize that we can sometimes be wrong however the NSW Office of Fair Trading seems intent on the concept of guilty until proven innocent.

The complaint was made after the former landlords (husband and wife) of our company completed a 2 day induction program at our Sydney Headquarters. The two clients desperately wanted to become part of Marquette Turner, working as Consultants leasing and selling property through our Melbourne Office. During the two days it became apparent that the two people would not be suited to our company and after discussing our feelings with them they decided to move the management of their property elsewhere and lodge a formal complaint regarding our mismanagement of their property (without making any complaint to us).

Their tenant was devastated when she was told that we would no longer be managing the home and she immediately wrote us a testimonial which was extremely touching (we are happy to share this testimonial with you which can be viewed by seeing the comment to this article or by selecting the attached link).

The disappointment of this is that the current system of lodging a complaint to the NSW Office of Fair Trading is resulting in people making unfounded, untruthful or vindictive claims (with no repercussions to them). It is resulting in bundles of bureaucratic red tape for agencies like Marquette Turner as we waste hours on explaining why we are not guilty of any wrongdoing.

What this also means is that time is being wasted on people who are really abusing the system at the expense of consumers who really need help. The current complaints system must be changed and those found to be fabricating stories must be held to account and prosecuted for doing so. That way the NSW Office of Fair Trading can focus on the issues that really count.

The directors of Marquette Turner have written to our local member The Honourable Clover Moore (Member for Sydney), and The Honourable Linda Burney (NSW Fair Trading Minister), requesting an audience and I will keep you posted with regards to our ongoing efforts to improve the system. Michael Marquette