Over supply ahead as tsunami of new apartment projects hit Melbourne, Sydney, Brisbane and Perth: Terry Ryder

A survey by researcher Michael Matusik has confirmed what many in the real estate industry knew or suspected – that developer claims about sales in their unit projects are often a pack of lies.

He surveyed 10 recently-completed projects with a combined 1,500 apartments in the Brisbane inner-city market and found that sales rates were, in most cases, agonizingly slow - quite a contrast to the claims of “selling fast”, “few remain” and “50% sold within the first month of release”.

He says many claims made by developers and marketers are so outrageously false, they should be investigated and prosecuted by the relevant authorities.

His conclusions: “The sales rates promoted in many new apartment advertisements are optimistic at best. In some case, there’s outright lying, which should be challenged by ASIC and the real estate institute.”

Amen to that. Project proponents who falsely claim to have made high levels of off-the-plan sales often goad gullible investors or home-buyers into hasty action, for fear of missing out. These buyers often end up with dud investments, over-priced and falling in value.

I get frequent emails from investors, usually impressionable young people, who are being pressured by accountants, solicitors or financial advisors into buying off-the-plan apartments in the inner-city suburbs of our major cities. 

They are bombarded with claims of high sales rates, never-to-be-repeated offers and the prospect of windfall capital gains. They’re under heavy pressure and highly stressed, because they’re afraid of making a decision they’ll regret. Many are unaware of the massive commissions their “advisors” will receive if they buy.

It’s the dirty underbelly of the property industry that regulators seem powerless to eradicate. But a clampdown on false claims about sales rates as a way of enticing buyers would be quite easy for ASIC or the Office of Trade Trading to police.

If Matusik can conduct a revealing survey, surely the authorities with their much greater resources can do the same or better.

His survey found that the true sales rate among the surveyed developments was just three apartments per project per month. The results ranged from one to seven sales per month per project, but the average was three sales per month. It took most of the projects 15 months to sell enough units (i.e. over 60% of the project) to start construction.

“The shortest time period to sell out a project was 21 months, while the average time was just over three years,” Matusik said. “Several projects took over four years to sell out.”

Amazing to consider these results, against frequent claims by project proponents of having sold half the units even before the launch of marketing, or having sold out most of the project in the first weekend of marketing. Often an expression of interest is classified as a sale.

Media reports such claims as gospel, when often they’re shameless fabrications. Journalists don’t challenge anything anymore.

Matusik says: “We need some clear rules. For mine, an off-the-plan sales can only be reported as ‘sold’ if the contract is signed, unconditional as to finance and the stipulated deposit has been paid.”

This issue will get worse before it gets better, given the upcoming tsunami of new apartment projects in Melbourne, Sydney, Brisbane and Perth as our major cities head into an era of over-supply.

TERRY RYDER is the founder of hotspotting.com.au. You can  email him or follow him on Twitter.