MILLIONS LOST IN KIWI APARTMENTS

MILLIONS LOST IN KIWI APARTMENTS
Thousands of investors face financial disaster.

by Neil Jenman

Thousands of investors have lost tens of millions of dollars in Auckland's apartment market.

Most investors, many of whom are Australian, are yet to discover the extent of their losses because many of the buildings in which they invested have only recently been completed. It is only when they decide to sell that the investors discover the extent of their losses.

A recent survey has shown that a staggering 80 per cent of investors who re-sell their Auckland apartments are forced to accept less than their original purchase price.

One apartment, for which the owners paid $555,000 was recently sold for $355,000.

The average loss, however, appears to be around $50,000 plus expenses. Given that New Zealand agents charge more than twice as much commission as Australian agents, investors' losses can quickly multiply beyond belief.

For example, an investor who paid $76,000 (for one of Auckland's notorious "shoebox apartments) re-sold it for $44,000. The agent, Martin Dunn, reportedly took a 25 per cent commission ($11,000) leaving the investor with just $33,000. And that still excludes the holding costs and legal fees.

Most Australian investors were lured into the Auckland apartment market by massive advertising campaigns in newspapers and radio. They were told that New Zealand has no stamp duty, no capital gains tax, no land tax and that the rental returns were double or treble the Australian returns.

The advertisements offered investors brand new apartments in Auckland for just a thousand dollars deposit with nothing more to pay for around two years.

"$1000 NOW and then NOTHING… for two years!" screamed the headlines in a series of ads placed by a company called Brick Securities, in Sydney's Sun-Herald newspaper in 2004 and 2005

Priced at $249,000(AUD) each, these apartments were in a complex of 418 apartments known as 'Volt on Queen' (Auckland's main street).

The apartments, which were yet to be built, were sold off-the-plan with promises of "8% plus!" rental returns. "Secure a brand new fully furnished 2 bedroom unit to provide you with additional income, security and future capital growth," said the ads.

Brick Securities Limited, who proudly displayed their membership of the Real Estate Institute of New Zealand in their ads, told investors that the rental returns would cover the cost of a bank loan, even for those who only paid a thousand dollars deposit.

It was an irresistible pitch - pay a thousand bucks, wait two years and the rent would cover the cost of the loan.

That's what tens of thousands of radio listeners heard in Melbourne and Sydney. "The radio was where we got most of our leads," said a former Brick Securities salesperson last week.

The 'Volt on Queen' building is one of several buildings where stunned investors are now discovering they were the victims of misleading advertising and dreadfully deceptive sales spiels.

Those apartments which were touted as wonderful investments are now selling for tens of thousands less than investors paid for them.

For example, a typical $250,000 Volt apartment just sold for $190,000, a loss of $60,000 (plus those mammoth commissions and expenses).

If all 418 'Volt' apartments have fallen in price by $60,000 each, that's a total loss of $25 million.

Surely this nightmare can't be true. But, even if the apartments have only fallen by $25,000 each, the total losses will exceed $10 million. In one building.

So what does the Real Estate Institute have to say about these scams carried out by their member agents?

"People going into these investment apartments should do their homework really well and get some sound advice before they invest in them," REINZ president told the New Zealand media.

In other words, don't believe his agents.

And what about Brick Securities themselves?

Last week, when told of the losses, a former salesman for Brick Securities had a one-word response, "Wow."

He then admitted that he was lucky he didn't buy one himself.

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FOOTNOTES:

More than three years ago, back in June 2004, Chris Simmons, an investigative reporter with Channel Seven's 'Today Tonight', presented a story warning investors about Auckland apartments.

In that story, a Sydney real estate agent, Peter Donkin, told viewers that investing in New Zealand was "a window of opportunity" and that "New Zealand, right at present offers better [returns] than anywhere else." Donkin was not selling apartments, he was buying them. I once knew Mr Donkin and quite liked him. I was astonished at his judgement.

Another buyer of Auckland apartments was David Fisher, a professional property investor who told Channel Seven's viewers, "I don't think you can go wrong. I invest in property that's what I do."

I (Neil Jenman) also appeared in the Channel Seven story. Here is some of what I said:

"This [the Auckland apartment market] is a swamp infested with crocodiles. Don't go in."

In relation to the thousand-dollar-down offer, I said: "This is a bait. You take that bait and you'll find that you'll have a lot more than a thousand dollars ripped from you."

I also said, "No stamp duty, no land tax, no capital gains tax. And something else… no profit!"

Chris Simmons closed the story by asking this question:

"Neil, what would you say to someone who has their pen poised over a contract right now to buy an [Auckland] apartment right now?"

I gave a three word reply: "Don't do it."

Two days later, I wrote an article, Finding Today's Worst Investment - Auckland apartments.

I remember the savage abuse I received following my comments. It was all worth it, however, because of messages such as this: "Dear Mr Jenman, We were just about to sign for an apartment which involved Brick Securities. Consequently, we decided not to proceed with the purchase. Thank you so much."

Being abused by crooks is worth it to protect decent consumers. I am only sorry now for the thousands of people who have lost millions of dollars in Auckland. It's even worse because I truly love New Zealand and its people.

I assure you I get no pleasure from accurately predicting scams. I wish I was wrong more often.

The other day, in a Sydney newspaper, I saw an advertisement offering property investment opportunities in Vanuatu.

Oh, please, spare me.

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This news article was taken from the News page of the Jenman website.

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