Greater need for transparency in developer incentives: Greg Sugars

A rash of developer incentive programs continues to confuse the residential property market and there is a genuine need for transparency.

First-home buyers and uneducated buyers are unfortunately often those targeted by such schemes.

The following is a photo taken this week, illustrates the kind of incentives in the market place.

So who pays for the new Ford Fiesta (currently valued at $15,000)? You would think the answer is obvious- “the purchaser”.

In this instance the land being marketed is being sold for an asking price of between

$156,500 and $165,000. Therefore the incentive is representative of almost 10% of the asking price.

So is a block of land or unit worth more due to the incentive? Maybe to the potential buyer.

But in a resale situation where no incentive is available, the market would adjust appropriately.

When a potential mortgage lender gets a professional valuation done, the price will be adjusted by the valuer to reflect the pre incentive price. This means the buyer will have to come up with the additional money that would in most cases simply reflect the value of the incentive.

Other incentives common in the market place include furniture vouchers, electronic equipment, landscaping packages, shopping vouchers and offers to pay the first $10,000 to $25,000 of the future builders contract.

In numerous instances the incentives are not as obvious as those depicted in the photo illustrated above. Most often they are hidden at the rear of a 100-200 page contract, or in some instances provided only on a second contract which is not disclosed to the lender or the valuer in the first instance.

Perhaps the developers would be better off pricing their stock at market levels, forget the incentives, be more transparent and build trust within the relevant market place.

Our experience suggests that the incentives at settlement time only provide frustration for the purchaser, mortgage broker, lender and valuer. It is a no win situation for all involved and often results in delays and disappointment.

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Greg Sugars is chief executive officer at the property valuation and advisory firm Preston Rowe Paterson.