Many Australians have invested in land developments that will prove to be worthless, having been enticed by high-pressure sales tactics and misled into thinking they are buying land that will soon jump in value.
The Senate Economic References Committee has called for tighter controls on property investment advisors, saying they should be regulated by the Corporations Act.
Its report “Land banking – a ticking time bomb”, says property spruikers have taken advantage of inexperienced investors, selling them into undeveloped rural land projects in the belief that the land will soon be rezoned for housing.
The land is often on city fringes and won’t be rezoned for decades, if at all.
The land banking racket will be depressingly familiar to students of dodgy investment practices.
Spruikers on high commissions (17 – 20%) use “wealth education seminars” to take advantage of investors with limited financial literacy.
They underplay the risk and use celebrities and testimonials from so-called self-made property millionaires to entice buyers, who are pressured to feel they must sign up before they miss out.
The client’s risk profile is ignored and people are encouraged to put most of their funds into one, often overvalued, asset.
The Australian Securities and Investments Commission (ASIC) told the committee that 60% of investors who went into land banking schemes did so through self managed superannuation funds.
Although the committee wants property investment advisors to be covered by Commonwealth law via the Corporations Act, it also calls for action by state and territory governments and investigation of lawyers involved in providing advice to investors.
ASIC estimates about 2000 people have invested in land banking schemes in recent years and speculates that it hasn’t had many complaints only because the schemes are long-term in nature and the buyers don’t yet realise their investment is worthless.