The state government commissioned a review into the Victorian property industry. All stakeholders were invited to participate by making recommendations as to ways of making the property industry better and fairer for everyone. I provided a submission, below are my 12 recommendations.
1. The regulators of the real estate industry in Victoria are Consumer Affairs Victoria (CAV). Below are three recommendations to improve their service.
• Consumers need to have confidence there is a framework of investigation for reported transgressions. CAV should have the power to make judgements and issue penalties for all types of real estate transgressions. CAV should not direct complainants to the Victorian Civil and Administrative Tribunal as it is already overloaded.
• CAV should have a visible presence at property auctions. This would act as a deterrent to unethical conduct, more particularly being present to witness first hand under-quoting and deter dummy bidding. This would be a proactive step rather than always being reactive. I have been going to auctions regularly for over 30 years. I have never seen a CAV representative at an auction.
• CAV staff requires more training. The quality of advice provided can vary substantially. Some senior people at CAV don’t understand what constitutes under-quoting. Currently the regulations regarding under-quoting are vague. Most people including real estate professionals would not be able to articulate what under-quoting is.
2. The Estate Agents Council is a statutory body whose role it is to advise government on real estate matters. Currently there is a lack of balance in the make-up of the Estate Agents Council. This is resulting in an imbalance of advice to government. There should be less reliance on the Real Estate Institute of Victoria (REIV) who mainly represents vendor’s agents. Property buyers need to be adequately represented as more often than not they are the victims of unscrupulous behaviour not vendor’s agents or property developers. While I acknowledge the REIV has initiated a number of worthwhile reforms their submission to the property market review did not seriously address any of the important issues that are currently effecting the Victorian property industry.
3. The cooling off fee that buyers have to pay has become too high. This regulation is out dated and should be changed. In Victoria when a buyer exercises their cooling off rights they are penalised $100 or 0.2% of the purchase price, whichever is the greater. The $100 penalty has become obsolete as property prices have risen substantially since cooling off legislation was enacted.This means that buyers are being penalised 0.2% of the purchase price if they choose to cool off. As an example, at the current Melbourne median house price of $1,120,000 buyers are being penalised $2,240 as a consequence of cooling off.
4. Educational institutions that provide the courses required to obtain a real estate licence need to be monitored and audited. There is anecdotal evidence that they entice students by effectively making the course shorter, easier and cheaper. If this is the case it will result in less trained real estate practitioners and a lower level of overall competency.
5.There should be a ban on the signing of section 27 (early release of deposit) statements by purchasers at the time of signing contracts. Some vendor’s agents are directing buyers to sign this document at the same time as the signing of the contract. This is mainly because they want to receive their sales commission prior to settlement as it is deducted from released deposit monies. A section 27 statement is a legal document and should only be signed after their legal representative has completed the appropriate checks on title. If a buyer’s deposit is released before settlement, they are effectively giving 10 per cent of the purchase price to the vendor before having received title to the property. There are inherent risks in doing this.
6. Board room auctions are becoming a common occurrence in Melbourne. There needs to be clarification as to whether cooling off provisions apply in this situation.
7.The buyer advocacy industry needs to be regulated. Buyers’ advocates have been operating in Victoria for more than 20 years however not one law has been passed to regulate this industry.
There is little differentiation in licence requirements between a buyers’ advocate and a vendor’s agent despite the roles being distinctly different. A large portion of the role of a buyers’ advocate is to provide property investment advice yet the current real estate licence course does not provide any training in this area.
A recognised code of ethics should be developed for buyers advocates. Most importantly all kickbacks and commissions from third parties should be declared to clients, similar to what has occurred in the financial advice industry.
8.There needs to be a crackdown by CAV on unlicensed operators giving real estate advice. These unlicensed operators work in conjunction with property developers peddling low grade property to unsuspecting buyers in return for a sling. Unlicensed operators giving real estate advice is in contravention of the Estate Agents Act.
9.There have been too many scams in relation to off the plan sales. In many of these scams buyers have been fleeced of their deposit monies. It is too easy for a crook to point to a block of land and claim they own it. They then show prospective buyers impressive photos of the finished building and then take off with their deposit.
Instead of off the plan deposits being paid to a legal practitioner, conveyancer or licensed estate agent, it should be paid to an independent government body similar to the way tenant bonds are handled. Deposits should only be released when the developer has upheld their obligations including titles being issued.
10. Property managers including owner’s corporation managers need extra training in technical building matters. Their lack of knowledge is costing property owners many thousands of dollars. On many occasions maintenance work doesn’t comply with building regulations or the works have been completed in a sub-standard manner. Also, kickbacks from building industry suppliers to property managers should be outlawed.
11.Victoria’s urban planning system should be overhauled. The process of obtaining a planning application is taking too long. This is creating a significant time lag creating a shortage of supply. Decisions regarding larger scale developments should be taken out of the hands of local councils. These types of developments should be decided by an expert panel.
12.The current supply of housing doesn’t match buyer requirements. The problem at the moment is not so much a housing shortage but a shortage of homes that people want to live in. Developers are mainly building either high density towers or large housing subdivisions on the outskirts of the metropolitan area to solve the supply problem. Neither of these types of housing are the homes that most people want to live in.
It is important that the proposed large scale inner Melbourne housing developments known as E-Gate in North Melbourne and the Fisherman’s Bend development include a large proportion of low rise, low density and detached dwellings with an individual land component. These are the homes that are mostly sought after by buyers. Both these developments have been in the planning stage for over 15 years, this is far too long.