It’s no doubt unsettling for Brisbane off-the-plan apartment buyers – facing their own “perfectstorm” in settlement conditions – to read accounts of how their Gold Coast counterparts fared just a few years ago when the GFC put paid to dreams of comfortable profits.

The latest study in disappointed Glitter Strip optimism comes in the form of a court ruling just last week that had its origins in the marketing of the notorious Hilton Surfers Paradise development in 2008.

apartmentIt concerns 10 or so buyers who went headlong into the investment before a 30% value crash prevented many from settling and suffering the terrible fate that inevitably followed.

Two of the protagonists – here from South Africa for a family wedding – were Farhat Essack, a South African Member of Parliament and his brother-in-law Razak Osman.

Persuaded by a trusted family friend already living in Queensland, the Hilton became a sure bet they shouldn’t miss out on.

That maven was Yunis Omar – who himself signed up for and would complete the buy of one of the apartments – but unknown to his companions, would negotiate a substantial fee for buyer referrals.

Omar claimed to have been sold by the sales team that the units were to be “five-star”; “prices were going up rapidly”; “on completion values would appreciate by at least 10%”; and the estimated 80% – 90% occupancy would ensure sufficient returns to service any mortgage.

Those financial assumptions went out the window as the GFC began to bite by early 2009.

The developer, naturally enough, looked to its customers to complete the contracts as signed.

Omar’s advice to Essack and the company named as buyer of the two units he had signed up for, was to “secure the two apartments and wait for the market to return” – something Essack was not in a position to do “because they did not have the monies to settle”.

Ultimately the developer sued the company as well as Essack and his wife – under their personal guarantees – for its resale loss and expenses.

The buyer conceded it was liable under the contract but counterclaimed for equivalent relief due to the developer’s misleading and deceptive conduct in the form of the unrealised projections its sales agent Jamie Ogilvie conveyed to Omar at its Orchid Ave sales office in January 2008.

Essack and Osman recounted to Justice David Boddice in Queensland’s Supreme Court how they had been told by Omar what Omar claimed Ogilvie had represented to him.

What the court had to decide was whether Ogilvie’s sales pitch been the source of Omar’s enthusiasm or whether Omar had convinced himself or was otherwise motivated to recommend his colleagues join in the luxury apartment deal.

It soon emerged that Omar’s statements to the pair went beyond what even he alleged the sales agent had pitched.

He had for example, spruiked they need only be out of pocket $200k for the deposits for 12 months by which time one apartment would easily be sold at a higher price “to a Chinese or Russian investor” so as to self-fund the deposit on the second.

He even agreed to take responsibility for selling their apartment and organising the pre-approved finance. “The risk was negligible,” Omar was at pains to make clear.

For his part, Ogilvie denied having given any projections or making any such representations. His policy was “not to discuss capital growth” and he certainly did not make any predictions even in relation to likely rental returns or occupancy rates.

Ogilvie even denied the Hilton was an “investor opportunity”. “It was sold very much as an owner occupier opportunity,” he swore. At the time he “could not figure out where everyone was getting the money to buy the apartments”.

Justice Boddice rejected Omar’s denial of the receipt of substantial referral fees – alleged to have been as much as $200k – from external agent Angela  Petropolous, for having referred family and friends.

His statements as to the likely returns and capital growth, were “more probably an attempt to encourage his friends to acquire apartments,” ruled the judge. “He has caused family and friends to enter into contractual arrangements which led to significant losses.”

But even had Omar’s representations originated from Ogilvie, so held the court, Essack could not be considered as having relied upon them in entering into the transaction because for example, he made no investigations into the matters said to have been represented.

Essack’s defence was rejected and he was ordered to pay the developer’s loss.

Assuming the original sale price for the two apartments was $2 million, the total amount the buyer will be out of pocket when the judgment is collected – inclusive of interest, legal costs and the deposits – will likely be upwards of $1.2 million, without any property changing hands.

The value slump and finance crunch this time round are rooted in over-supply rather than a financial crisis. This may suggest better quality stock has a greater prospect of weathering the storm in that its availability is restricted. Buyers of such stock might indeed be better served by following Mr Omar’s advice to “secure the apartments and wait for the market to return,” assuming they can afford to do so.

Elan Boulevard Pty Ltd v Fnyn Investments Pty Ltd & Ors [2016] QSC 123 Boddice J 09/06/2016


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