Off-the-plan Investors Abusing Deposit Bonds Face Ruin

Sun Herald

Sunday August 12, 2001

By CINDY MARTIN

WARNINGS have been issued about seminars promising a new method to get rich quick by snapping up millions of dollars worth of property for a fraction of the price.

The practice involves ``deposit bonds", a legal product, which allow an investor effectively to put a lay-by on a property under construction for just 1 per cent of the purchase price.

A $500,000 unit would normally require a 10 per cent, or $50,000 deposit to secure. However, a deposit bond of $5,000 or 1 per cent would be enough to secure it.

So for about the same as a normal deposit on one investment property, investors can purchase up to 10 properties.

With construction not due to be completed for up to several years, investors can sell closer to the completion date for a profit, thus avoiding having to pay the full amount for the property.

However, some seminars are illegally encouraging investors to acquire loan pre-approvals from a number of banking institutions.

The investors qualify for several loans at the same time, without the lenders knowing, enabling them to borrow beyond their means and buy many deposit bonds.

A graduate of one of these seminars, who did not want to be identified, said he bought five deposit bonds and is now scared he'll end up in jail.

``I was told it was a fairly simple process of purchasing with a bond and then selling the property at a profit before I had to pay a full deposit or settle on the property," he said.

``Three of the properties I purchased for $350,000, I was able to sell before completion for between $375,000 and $400,000 but the other two properties that were recommended by the seminar presenter have actually decreased in value and I can't sell them.

``This is going to, at the least, make me a bankrupt and at the worst I will do time in jail for fraud and stupidity.

``Please warn other people not to do this."

Aussie Home Loans chief John Symond said the risk was not worth taking.

``I advise strongly against these tactics," Mr Symond said. ``Nobody can be certain what will happen to the property market and don't listen to so-called investment advisers who conduct these investment seminars.

``These people and financial planners work hand-in-hand with property developers and unsuspecting and inexperienced investors are being burnt.

``Some people have been encouraged to purchase a property for $280,000 which is worth no more than $160,000. I can't stress enough that an investor should obtain an independent valuation.

``And don't even consider a pre-approved loan from a number of banking institutions. You will find yourself at the end of a police investigation for mortgage fraud."

Glen Mannard from the Mortgage Store said it was ``terrifying" how common the practice had become.

``People earning $80,000 a year are able to own over $2 million of property on paper," he said.

``We are being asked by clients to lie and get a number of pre-approved loans on their behalf. We just won't touch them... the risk of financial ruin is exceptionally high."

© 2001 Sun Herald

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