As an investor led property rush pushes prices in some locations back to pre-GFC levels, tragedies that befell those with the same enthusiasm for a piece of the action just five years ago, continue to unfold in our courts.
The two tower Hilton Surfers Paradise development was one of the worst effected for valuation induced settlement defaults, in the most GFC devastated real estate market in the country, Queensland’s Gold Coast.
Consider the story of Perth couple, Andrew and Mia Lewis, who sauntered into the Ray White Cavill Ave sales office when holidaying on the glitter strip in July 2009.
Greeted there by agent Gary Hendrick beside a model of the finished resort, they explained that an agent at the Hilton sales office had already offered them the last available apartment in the Boulevard Tower at $932k.
Hendrick was claimed to have responded that buying in at under $1 million reflected a “GFC price-reset” and a real bargain which assured “20% capital growth” by the time they had to part with any money.
Like the “outside of town” Palazzo Versace – the only “equivalent” five star establishment nearby – they could expect Hilton to collect $500/night at 80% occupancy. The unit would therefore be “positively geared”, they claimed Hendrick to have said.
Sufficiently interested, they paid a $5k holding deposit to give them some time to decide.
Back in Perth, they did their sums and made enquiries of their finance broker. Andrew also made contact with a Westpac banker in Surfers, referred to them by Hendrick.
By August, the Lewises had taken up a suggestion – to allow a greater time interval until settlement for the capital value of the unit to increase – that they switch to one in the yet to be started, Orchid Tower.
A conditional finance approval from Westpac in hand, they decided to sign up in September.
Two years later as as construction of the number two tower drew to an end in August 2011, they made formal application for an $875k loan.
Finance was regrettably declined due to “changing property market on the Gold Coast that could lead to the valuation for units to be 30% below the purchase price”.
Settlement was called for in September but with no means to settle, the Lewises elected to terminate purportedly on the grounds of Hendrick’s misleading and deceptive conduct.
They commenced Federal Court proceedings in February 2012, seeking a declaration that the contract was void and for a return of their $93k deposit.
By August that year the unit had been resold for $624k, crystallising a loss on resale (after adding resale costs and holding charges) of $226k.
Their three-day trial resulted in a July ruling that Hendrick had not in fact made the “positively geared” representations.
Even had he done so, their decision to proceed was based on having received the Westpac finance approval which they mistakenly believed was unconditional.
Rather than having relied upon any statements by the agent, they had – according to the court – made their own enquiries and come to their own mistaken conclusions, that the property would likely appreciate in value pending settlement.
They lost their deposit and must now pay up the developer’s $226k loss, plus interest of about $100k and its legal costs of around the same sum.
Lewis v Orchid Avenue Pty Ltd [2014] FCA 739 Dowsett J 25/07/2014
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