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Friday, May 27, 2016

Rent-to-buy house deals can lead to disaster

Rent-to-buy house deals can lead to disaster Rent-to-buy deals that claim buyers with little money or income can secure a property for $1 upfront can lead to massive losses for both buyer and seller. Rent-to-buy deals could end in tears. Photo: Getty With property prices sky-high, some people with no deposit are being lured into rent-to buy property deals that could end in big losses and no property. Australia’s state and federal Consumer Affairs regulators are so concerned about the issue they have launched a joint campaign to warn people off such schemes and their high-pressure selling techniques. • Rents slump, with ritzy suburbs hit worst • Latest rate cut leaves many short-changed • Lenders play musical chairs on negative gearing The rent-to buy schemes that trouble the regulators can take advantage of both stressed buyers and sellers and are usually driven by third parties who are trained at high-pressure seminars. They work like this: For those who can’t get a mortgage People wanting to buy a house but who don’t qualify for a housing loan are attracted by ads from middle people who promise to help them buy a property with no or very little money down. They may put up a little money as a deposit then make what is essentially an “option agreement to buy the property in the future”, said Susan Quinn, senior policy officer with the Consumer Action Law Centre in Melbourne. 0526renttobuy Such option arrangements are usually seen in the commercial property market, not among unsophisticated home buyers. Those agreements see would-be buyers pay lease fees they believe will help them build enough equity to qualify for a home loan when their lease agreement expires, usually in three years. On top of the equity payments, they pay rent. Ms Quinn said the deals can involve “huge fees that are sometimes more than the rent and the rents can be pretty inflated”. There may be no legitimate contract. Photo:AAP At the other end of the deal, property owners, who are often under financial stress, do a deal with the middle people to sell the house on terms that can be below market rates. In some arrangements they get little or none of the equity payments made by the would-be buyer and get just enough rent to pay their interest payments. It’s not a legal sale From the buyers’ viewpoint “the deals are completely unrealistic from the beginning”. “People end up paying far more than the market rent and in the end are not approved for a mortgage and have to walk away from the deal,” Ms Quinn said. When people walk away they often find they have no rights over the property. “The big trick in all this is that it’s not really a property sale: the buyer doesn’t get legal title,” she said. And often they have no rights to the return of their so-called “equity”. “Technically, the installment payments are refundable; but the contract may be written in a way that removes the buyer’s right to a refund,” Vince Pelligra of law firm Slater and Gordon told the Perth Now website. Sellers also get hit In the worst case, vendors, who remain legally responsible for the property where there is no valid sale agreement, may have to accept a below market price for their home from the middle man, and receive little or none of the monthly equity payments. They also lose rights to future capital growth. WA Consumer Protection spokesman Luke Eaton toldThe New Daily that WA had cracked down on rent-to-buy spruikers in recent times. “Consumer Protection WA has received 15 complaints and 84 enquiries on the issue. We are acting before the numbers grow.” Authorities are acting Consumer Protection WA took action against Richard “Rick” Keith Otton, together with his companies Rick Otton.com Pty Ltd and We Buy Houses Pty Ltd, leading them to agree to an enforceable undertaking to refrain from conducting property investment seminars in WA for two years. The Australian Competition and Consumer Commission has also taken action against Mr Otton and his company We Buy Houses claiming misleading and deceptive conduct around their promotion of such schemes in a case due in court in August. WA Consumer Protection in November 2015 also forced Presto Property Solutions Pty Ltd and its director Ms Rowan Amanda Lines, to repay consumers $70,000 over false and misleading declarations made over rent-to-buy schemes. Ms Quinn said her group is pursuing six cases, including one where a complainant lost $57,000 for an off-the-plan property that was never built. Another saw a buyer pay $80,000 over the market price rent on a property over three years. Source: www.thenewdaily.com ================================= Mar 23 2016 at 11:42 AM Updated Mar 23 2016 at 1:01 PM Save article Print Reprints & permissions AMP 'blacklists' more than 140 suburbs for apartment lending Share via Email Share on Google Plus Post on facebook wall Share on twitter Post to Linkedin Share on Reddit "The risk of a potential over-supply of apartments is largest in Melbourne and Brisbane, where apartment building has ... "The risk of a potential over-supply of apartments is largest in Melbourne and Brisbane, where apartment building has been at record highs as a share of the existing stock. There is also some risk of over-supply in Perth, where apartment building has been strong." Graham Denholm by Duncan Hughes Apartments in more than 140 suburbs are on a confidential black list because of growing concerns about oversupply, off-the-plan sales, and, in some areas, falling prices, according to leaked documents. AMP Bank, the banking division of the largest financial services group that compiled the list, claims it is a "prudent" response to managing risks of "over-supply", which could push down prices, rents and lead to defaults. "We have identified certain high density areas where we have put provisions in place to manage risk and over-supply," a spokesman says. "We take a prudent approach to managing risk," she says. AMP is one of several big lenders circulating 'black lists' of suburbs where apartment buyers will face tougher terms and conditions, including increased scrutiny of their ability to pay. It is focusing on developments of more than 10 apartments being built around state capitals and inner-suburban postcodes where there are high volumes of new, or soon-to-be-completed complexes. Suburbs more than 10-kilometres from Sydney's central business district, such as Homebush and Arncliffe, where there is a lot of apartment building underway, have recently been added to the list. AMP borrowers will face tougher terms on the amount borrowed, number of apartments purchased in a single development and a ban on using some incentives offered by developers, such as rental guarantees. Other lenders have recently issued similar warnings about former real estate hot spots that have gone cold, typically in former mining boom towns of Perth and Darwin, where rents and prices have been tumbling. Queensland accounts for an additional 73 suburbs, which is more than half the nation's total, including Cairns and many ... Queensland accounts for an additional 73 suburbs, which is more than half the nation's total, including Cairns and many suburbs along the Gold Coast, including Broadbeach, Mermaid Waters and Florida Gardens. Supplied Rock Building Society has reviewed and expanded its list of 'high risk' postcodes and issued a limit on luxury properties and maximum loan-to-value ratios for those properties of 70 per cent. ANZ is circulating a list of 50 postcodes, concentrated around Western Australia, Queensland and NSW mining towns, that is describes as "not acceptable" for providing lenders mortgage insurance, which is a one-off insurance payment that protects lenders against default. It is also impose tougher controls on the use of commission and overtime payments used in calculating buyer's ability to service a mortgage. AMP's 'high risk' list targets state capitals, particularly Melbourne and Sydney, where the building of apartment buildings has boomed because of demand from investors and first-time buyers that cannot afford a house in suburbs. In Sydney the focus is also for developments around the central business district and inner suburbs of Dawes Point, ... In Sydney the focus is also for developments around the central business district and inner suburbs of Dawes Point, Darling Harbour, Millers Point and Sydney South. Wolter Peeters The main Melbourne focus is the central business district and nearby Docklands and Southbank, where large numbers of high rise complexes continue to be built. Melbourne's overall apartment prices are up about 5 per cent and rents around 4 per cent during the past 12 months, according to SQM Research, a company that analyses property prices. But there are pockets of over-supply, which could be worsened by imminent completions of major construction projects. In Sydney the focus is also for developments around the central business district and inner suburbs of Dawes Point, Darling Harbour, Millers Point and Sydney South. Sydney, which as been the nation's top performing residential property market, posted rises of nearly 10 per cent for apartments and 5.5 per cent for rents during the past 12 months, according to SQM. Inner Brisbane, which has been issued a buyer 'red alert' by SQM because of concerns about over-supply, is also on AMP's watch-list. Queensland accounts for an additional 73 suburbs, which is more than half the nation's total, including Cairns and many suburbs along the Gold Coast, including Broadbeach, Mermaid Waters and Florida Gardens. Prices of Brisbane units have increased by about 1 per cent during the past 12 months and rents are up by about 2.4 per cent, according to SQM. Developers are offering buyers three year rental guarantees on sales, which are three- to-four bedroom apartments selling for about $500,000. Lenders are concerned about the number of new apartments expected to flood onto the market over the coming 12 months, adding to a large existing inventory of unsold, or vacated, apartments in many markets. An estimated 45,000 apartments are due for completion and settlement over the next nine months to Christmas in Melbourne, Sydney and Brisbane, an increase of nearly 25 per cent compared to last year, according to planning consultancy MacroPlan Dimasi. Another 53,000 could be coming to market in the same postcodes next year, the consultancy estimates. Perth, where unit prices have fallen by 9 per cent during the past 12 months, has more than 30 blacklisted suburbs, particularly around central and east Perth, where rents are routinely being slashed by increasingly desperate landlords. Darwin, which is also struggling to absorb developments that were commenced during the mining boom, is also listed. Lenders are also worried that off-the-plan investors might not be able to bridge a deposit gap caused by lower loan-to-value ratios, which means bigger deposits before settlement. A recent survey by WBP Property revealed nearly half off-the-plan sales in the eight months to last August were in negative equity, which means worth less than the purchase price. Average losses were about $40,000, or about 10 per cent, between agreement to buy and pre-settlement valuation, which is required by lenders to assess any changes in value and he amount of money a lender can borrow. Buyers have to bridge the gap between the purchase price and final valuation, which can result in contract breach, deposit loss and, potentially, legal action by vendors. AMP, which says its analysis is based on in-house and independent consultancy, says borrowing restrictions target what it describes as "high density" areas, which are apartments in complexes with more than 10 units and located within the blacklisted postcodes. Under the new lending arrangements, loan-to-value ratios are up to 90 per cent, there is a maximum of two apartments per borrower on any development, rental guarantees will not be accepted and a cap of 25 per cent of any individual development, or 10 units, which ever is the bigger. Other lenders, such as ING Direct, recently banned inducements of rebates, special conditions, furniture, televisions and cars to buyers to complete their off-the-plan deals. Lenders fear the undisclosed incentives could increase the value of a property in a way that cannot be transferred to success buyers. Read more: http://www.afr.com/real-estate/amp-blacklists-more-than-140-suburbs-for-apartment-lending-20160322-gno3em#ixzz49wICboAh Follow us: @FinancialReview on Twitter | financialreview on Facebook

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