Dodgy marketing tactics luring unwary investors into regional and mining town no-go zones

Property investors need to be ever vigilant. Many feral creatures prowl the real estate domain looking for ways to devour consumers, often using deception to lure buyers. A significant part of my 30-plus years as a researcher and writer have been spent investigating real estate scams and I know property to be a dangerous place for the unwary.

Many developers are using marketing companies to shift stock at the moment. These specialist marketers can earn massive fees, way beyond the commissions paid to mainstream real estate agencies who sell properties on behalf of vendors.

Why would developers pay 6% or 10% commissions to marketers when agencies will do the job for 2% or 3%? Because the stock in question is proving difficult to move, usually because the local market is oversupplied or otherwise in serious decline. They need an outfit which is happy to use dodgy methods to flog this unwanted stock to distant investors, often at above-market prices.

Right now developers are struggling in oversupplied regional centres like Gladstone and Mackay or in mining towns with falling markets such as Moranbah in Queensland and Port Hedland, Karratha and Newman in Western Australia.

No informed investor would buy in any of these places at the moment because they are all in serious decline and the bottom has not been reached. All are locations that will recover in time, but that time has not yet arrived.

The glossy promos pumped out by the marketers make no reference to the parlous state of these markets. They speak of vibrant local economies, strong markets and the prospects of double-digit rental returns – all claims that are blatantly false.

Sometimes real estate media will publish the propaganda from these organisations, without providing any journalistic filter to the “information”. One property magazine last week published verbatim a press release from a marketing company which claimed Moranbah was “on the cusp of another property boom”. This was written by the team marketing a unit development in Moranbah so there was an obvious vested interest in talking up Moranbah’s prospects.

When a magazine publishes this kind of rubbish it’s dangerous for consumers because it’s presented as genuine editorial and credible information.

I have no doubt Moranbah, which has been a real estate growth star in the past, will recover in the future. But right now it’s the nation’s  number one no-go zone. Rents are about one-third of their previous levels and the median house price declined 42% in the past 12 months. The coal sector, which is Moranbah’s only industry, is still in downsizing mode with commodity prices low and costs still way too high. The biggest miner in this region, the BHP-Mitusubishi joint venture, has just announced further job sheding to trim costs.

Another alarming example of marketing hyperbole which casts the truth to one side was a promo from marketers seeking to peddle high-priced townhouses in Wandoan in Queensland.

The promo said the new townhouses were in “the heart of the Wandoan CBD”. Anyone who knows Wandoan will laugh at the notion of it having a “CBD”. Wandoan is the quintessential one-horse town, with a population around 350.

The project was proclaimed “Wandoan Central, The Property Investors Dream”. The marketers claimed investors would “easily earn up to an amazing 14.4% return”. The townhouses had asking prices around $450,000, in a town where you can buy houses on land for $100,000 to $150,000 less than that.

Let’s be clear about Wandoan. The only reason anyone would build a unit development here is because international mining company Xstrata (now Glencore Xstrata) was planning a $6 billion coal mine and there were also plans for $1 billion rail link to the coast from this region. We have alerted our clients to this because, if those projects go ahead, Wandoan will become a much larger town.

But, as I’m sure the marketers of Wandoan Central know, both those big projects have been deferred. The new Glencore Xstrata is scrapping projects to trim costs and the Wandoan mine is one that’s been chopped. And without projects like this, the rail line is not feasible.

There are also companies pumping out propaganda on Karratha and Port Hedland, oblivious to rising vacancies and falling prices and rentals. The claims made about the yields that can be achieved in the current market are patently untrue.

Karratha prices are on a serious downward path. Locations which previously had median houses prices in the $800,000s are now down in the $600,000s and vacancy rates have hit 7-8%. Sales volumes are dropped and prices have followed.

These locations will recover in time, but the time to re-consider their prospects for investors is a considerable way off.

Terry Ryder is the founder of hotspotting.com.au.

You can contact Terry via email or on Twitter.