Beware opinions from vested interests

Good market intelligence is a hard thing for property investors to find. There’s no shortage of opinions and information, but it’s hard to know what you can trust.

A lot of the material in media is vested-interest views masquerading as information. The real estate industry is well-organised and has influence with newspapers because of the value of advertising. Some newspapers happily re-cycle industry propaganda as news.

The question for property investors is: who can you believe? The trick is to sort independent comment from that of people with a vested interest.

Below are prime examples of vested interests putting forward wishful thinking as information. They all represent cases of “buyer beware”.

1. Agents advocating Open Houses.
2. The property industry putting a spin on statistics.
3. Timeshare proponents claiming they’ve changed.

Case study #1:
Agents advocating Open Houses

One Sydney newspaper gives the Real Estate Institute of NSW a weekly column to provide information to buyers and sellers. The institute uses it to promote views that suit the interests of real estate agents - for example …

• Now is the time to buy,
• Sellers need to cut their prices,
• Sydney is a great place to invest.

Clearly it would be great for Sydney agents if everyone believed that and acted on it. But it’s not necessarily sound advice for consumers.

Recently the REINSW president, Cristine Castle, used the column to espouse the benefits of Open Houses. She did so at a time when the industry was reeling from the murder of an Open House agent and news that thieves robbed dozens of homes over five months (in the latest example of how criminals use Opens to steal).

Under the headline Attract buyers with an Open House, Castle put forwards the usual arguments from agents about this system ...

• Opens are becoming increasingly popular for all residential sales.
• Vendors “give their home the best possible chance of selling” with Open Houses.
• Opens allow vendors to organise their time.
• Buyers love Opens because they’re so convenient – “they can maximize the number of properties they’re able to see in a day”.

There’s a danger people might take those comments at face value. They are, after all, in a column in a metropolitan newspaper, which gives them some credibility.

The reality is that Castle is advocating a system designed to suit the real estate agents she represents, not the consumers she’s speaking to. Agents like Open Houses because they appear to demonstrate activity, even though many visitors are tourists, tyre-kickers or thieves. They allow agents to collect names and phone numbers of buyers for other properties they have for sale or potential sellers of properties. And it takes only 30 or 60 minutes of the agent’s time.

Open Houses are scheduled to suit agents, not buyers. They’re usually squeezed into a narrow window on a Saturday to minimize the time agents spend earning commissions. Buyers commonly face the frustration of finding that three homes they like all have Open Houses from 10.30 to 11am – and that’s the only time they can view those properties.

Castle also made this comment in her column: “Most agents believe it’s better that vendors aren’t present when buyers look over a property … The vendor’s attachment to their home can make potential purchasers feel uncomfortable … It’s better to let the agent handle these kinds of situations.”

The truth is agents don’t want home owners around because they don’t want owners to know how lax their security is. This is why so many homes have been robbed. One Open House thief faced 151 charges after stealing $130,000 in valuables from dozens of homes. Another pleaded guilty to robbing 25 homes of $110,000 – and publicity about the trial unearthed another 31 homes hit by the same thief, who was sentenced to two years in jail.

Agents also don’t want owners to know what they’re saying to buyers. They use feedback from Open House visitors to talk down the price to make the sale easier. They encourage visitors to give a low value estimate so they can condition the sellers.

Agents also use Opens to trawl for buyers of other properties they’re marketing. And they don’t want their clients around to see that.

It’s all about the interests of agents. Castle’s column was a case of vested interest dressed up as consumer advice.

Case study #2:
Figures don’t lie except when liars figure

The real estate industry is full of people who want us to believe the market is better than it really is. This leads industry bodies to put a positive spin on statistics.

The Real Estate Institute of Australia recently claimed there was “evidence of ongoing strong interest in the housing market” based on results in the September 2005 quarter. This found there were increases in home prices in Perth and Darwin. In making its buoyant assessment, it ignored Sydney, Melbourne, Brisbane, Adelaide and Canberra, where prices either fell or remained stagnant.

The auction clearance rates published by the real estate institutes should be viewed with great suspicion. They include many private treaty sales as auction successes, including sales achieved by negotiation before a scheduled auction or some time after the auction has failed to produce a sale.

As a general rule, you can deduct at least 10 percentage points from an REI clearance rate to arrive at a true figure - i.e. if a real estate institute claims a 50 percent clearance rate, the true result is likely to be 40 percent or less.

Another recent example was provided by the Housing Industry Association. The HIA regularly releases statistics on the state of property market: e.g. how many new houses are being built and sold, or how many new building approvals there are. Their data is usually solid but sometimes their analysis is tainted by their vested interest – i.e. a buoyant market.

In January the HIA published home construction data with the headline “A welcome bounce in building approvals”. It suggested “some strength has returned to Australia’s new home building industry” and “there appears to be a level of underlying confidence in the market that perhaps the worst has passed” - based on approvals in November 2005.

But when you examined the data, this is what you found: approvals fell in Queensland, Western Australia, South Australia and Tasmania, continuing a trend of falling approvals. In NSW there was no change on previously depressed levels.

Victoria alone had an increase, with a 19 percent spike in approvals. But this was an aberration caused by a State Government policy change. The Victoria Government had announced it was cutting the first home owner bonus from 1 January and buyers rushed to beat the deadline. Home lenders in Victoria reported an increase in activity in November and December for the same reason.

This unnatural jump in Victoria was the only thing causing a very slight rise in building approvals nationally. The HIA itself admitted: “For the rest of Australia, the orderly slowdown continues”.

So why the upbeat spin? Because, after two years of steady decline, the housing industry is desperate for some good news.

Case study #3:
Despite their claims, timeshare marketers haven’t changed

According to a recent newspaper article, timeshare has “shaken off its dodgy image” and is primed for a growth surge. The industry “boasts a new respectability” and is “booming”. It forecasts 25 percent growth this year. Everyone is “bullish about the future”.

This appeared in the Weekend Australian, a national newspaper with some pretensions to quality. The headline “Timeshare industry comes into its own” and the article which followed (under what purports to be a journalist’s byline) were highly misleading.

It appeared only a few months after a federal Parliamentary Joint Committee delivered a damning report on timeshare after a national inquiry. Both Liberal and Labor politicians criticised industry practices, noting a history afflicted by scandal. They said little had changed.

The committee’s recommendations outlaw common timeshare marketing practices: pressure selling, baiting people with free holidays or electrical goods to get them to sales seminars, and offering inducements which are available only if people sign immediately. There will be a ten-day cooling-off period, a guaranteed buy-back price and consumer warning statements – all as a result of decades of bad behaviour by this industry.

Liberal Senator Grant Chapman, committee chair, spoke of “dark practices”. He said: “The industry argues that pressure selling is a thing of the past, but we are not convinced. Buyers who attend timeshare seminars are very likely to be subjected to undue pressure.”

Senator Chapman also criticised the lack of a market allowing people to sell their timeshare interests, which meant they were “locked in for up to 80 years”.

But there was no mention of this in the Weekend Australian article. Rather, it allowed timeshare spruikers to lobby for a relaxation of laws governing how they operate. It allowed them to continue referring to timeshare as an “investment”. (An investment is something that provides a regular income return and/or grows in value. Timeshare interests do neither.)

The article even suggested borrowing at 11 percent to buy timeshare is “a popular option”.

The truth is timeshare hasn’t changed and it never will. It’s a bad concept, a poor investment and methods used to market it are still suspect – as the federal committee found.

NOTE: The Australian did provide some balance, three days after the timeshare article, under the heading “Smart scammers hard to tell from legit business”. In a list of scams it included “the offer of a free holiday to a timeshare resort”.