Investors duped by hotspot claims

By Jack Needham 01 April 2016 | 1 minute read

Australian property investors have been warned not to fall for get-rich-quick suburbs.

David Pascoe, an author, former property wholesaler and founder of Buy Australian Properties, has used recent media reports of failed mining town investments to warn of the biggest scams currently facing Australian property investors.

Speaking to Smart Property Investment, Mr Pascoe shared his theory that many failed mining town investors had been the victims of property spruikers.

“A lot of people who have bought in these hotspots, these mining towns, that the pants have dropped out of and they end up going bankrupt and losing everything – they went through spruikers; they went to seminars, they went to webinars, they went to information nights, they went to education nights, where the spruiker filled them with the grandiose dream that you could make millions and billions out of property investment and you can do it really quickly if you find the next boom town.”

Mr Pascoe used Roxby Downs in South Australia as a key example of investors being duped by unfounded hotspot speculation.  

“I’ve seen a lot of hotspots and boom towns, especially when I was in Adelaide. Roxby Downs, which was Olympic Dam – hotspot, boom town, everyone jumped on the bandwagon and then BHP pulled $35 billion off the table and didn’t develop it.”

Despite the commodities boom coming to an end, Mr Pascoe warned that investors still face unscrupulous real estate operators in other areas of the country, citing as an example the offers of rental guarantees for new developments in some of Australia’s largest cities.

“Rent guarantees, the rent guarantee dilemma that people have in this country is that if you notice that there is an oversupply of product coming, like there is in Brisbane, Sydney and Melbourne of high rise apartments, the rent guarantees go from one [year] to three to five, and we’ve even seen some in Melbourne that are seven years rent guarantee.

“So there’s another real danger for people to consider […] sometimes the rent guarantee is built into the actual building, they’re just upping the price and covering their risk, or other times a rent guarantee is put together by a marketing and spruiking company where the rent guarantee is underwritten by a $2 company with no assets or value, so if they go bust, your actual rent guarantee is useless.”

Mr Pascoe advised investors to avoid property investment advice that is based on following a single, formulaic strategy.

“Generally the spruikers that will tell you that you should only buy cash flow positive, that’s all they’ve got on their stock list,” he explained.

“Some say only buy in mining towns, some say only buy in regional areas, some say only buy waterfront. Here’s an idea: how about you buy what’s right for you at that time? Maybe it’s right for you to buy a new property this year, a second one next year, a waterfront one the year after, a regional one the year after. I don’t know, but I won’t say 'This is what you must do'.”


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Investors duped by hotspot claims
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