Does a failed ponzi scheme point to something more serious?
I’m guessing your probably saw this story about six LJ Hookers in Melbourne being shut down.
From the ABC:
More than 100 customers are owed “substantial” sums of money following the collapse of six LJ Hooker branches in Melbourne, with the couple involved in running the business under investigation for allegedly misappropriating their clients’ money.
The ABC has learnt that six LJ Hooker branches in Melbourne were shut down by the company’s head office last week with customers claiming that hundreds of thousands of dollars in deposits had gone missing.
In a statement to the ABC the real estate giant said that it had stepped in to end their relationship with the franchisee involved.
“On 21 April 2016 LJ Hooker terminated the franchise offices of LJ Hooker Glen Waverley, Keysborough, Box Hill, Mount Waverley, Doncaster and Burwood … due to a fundamental breach of its franchise agreements,” the company said.
The ABC understands the owner of the closed franchises Judy Thanh Truc and her husband Joseph Ngo, are accused of spending home deposits that were supposed to be held in trust for their clients.
So it turns out that embezzling clients deposit money and running off with it is a fundamental breach of the franchise agreement. No kidding.
Ms Truc has told the media that someone has tried to hack her account. But LJ Hooker refute this, saying they’ve never heard anything about any hacked accounts.
It’s all a bit embarrassing for LJ Hooker. JLH’s team was “Team of the Year 2015.”
But for the people who’ve just lost a deposit on a house it’s heart breaking. Haul ‘em over the coals I reckon.
So is it just a couple of rogue operators? I suspect it is, but my feeling is they may have been using the Chinese buying spree as cover for a bit of a Ponzi scheme.
If you look at the areas they were operating in, they were hot areas for Chinese buyers until recently.
And we know that Chinese buyers have found it tougher in recent times, both to get money out of China, and to get finance in Australia. There’s growing reports of Chinese buyers failing to make settlement.
So it wouldn’t surprise me if these guys had siphoned off some of the flow of Chinese money for themselves, using tomorrow’s buyers to pay off today’s. But when that flow started to dry up, they were caught short.
And their customers are suffering for it.
We’re hearing similar stories of Chinese hardship in Sydney. From The Australian:
Asia-based buyers scouting homes on Sydney’s upper north shore are requesting delayed settlements and are walking away from deals as local banks clamp down on lending to buyers who earn income offshore, and China tightens restrictions on outflows.
Agents marketing properties in well-heeled suburbs, including Wahroonga, Pymble, Roseville and Killara, have noted price falls of up to 3 per cent and softer levels of demand, as the appetite from Asia-based buyers falls away.
Other sources indicate price falls could be as high as 8 per cent.
“We’ve noticed it since November and the number of overseas buyers is dropping,” Savills Cordeau Marshall chief executive Craig Marshall said.
…“They know what’s going on here, and they’re tightening up on funds leaving the country; it’s absolutely going to continue to have an impact on our market.”
And for real estate agents that have grown used to the flow of Chinese money, that’s not good news. Witness the recent profit warnings that the recently floated McGrath’s has announced.
As I said, Chinese money is being squeezed by two thighs. The first is tighter lending conditions in Australia. In recent weeks, Westpac, CBA and ANZ have all announced much tougher conditions for foreign buyers, and a refusal to accept foreign income in serviceability calculations.
Yep, not that long ago you could say that you were getting money from a Chinese-based fairy-godmother, and still get finance.
Those days are gone.
At the same time, the domestic situation in China is also getting tougher. The Chinese authorities have been fighting hard to maintain the value of the Yuan, and a big part of that is stemming the bleed of foreign capital.
That means it is much harder to get money out of the country. The days of the Chinese cash buyer may have come to an end.
What’s more, the rise of the Aussie dollar so far this year, means that Aussie houses have actually become more expensive, and they need to get even more money out of the country.
Based on currency movements, settlement is now going to cost you 10.5% more than 6 months ago – a typical settlement period on an apartment.
The Aussie dollar is now stronger than at any point in 2015, so every Chinese buyer is looking at a more expensive settlement than they possible planned for.
Of course, if Chinese buyers think the Aussie dollar will depreciate – something everyone is still waiting for – then delaying settlement could make sense. Faff around with settlement for a few months, and you could save yourself 5% or something like that.
It could be worth it.
Chinese money has been one of the big stories in property in recent times – particularly in inner-city, off-the-plan apartments. But it now looks like the tide is turning.
This will drag on growth in the immediate term, in the same way the inflow of money caused a short-term boost. In the long run I wouldn’t be too fazed.
But if you’ve been using Chinese buying to cover a real estate Ponzi scheme, look out. The tide is going out.
What do you reckon is going on here?
hammerv2 says
I think you’re pretty much spot on.
Just another reason not to touch an OTP inner city appartment with a 10 foot pole.
Sydney is having a correction right now. The mainstream media and stats are 6 months off as usual, but it’s happening right now.
As it probably should.
Dave says
Good. The quicker the chinese piss off from buying up our property that our kids could have bought the better.
Stuart says
The issue I have with Chinese buyers is the selling of farms including some very large stations recently. The problem is not really with the Chinese as such – they are just trying to shore up their food supply so can’t blame them – the issue is really with Australian authorities who continue to allow it to happen. Once they’re gone, they’re gone for good and you can guarantee all of the produce is being exported to China.
PS @hammerv2:disqus: certain parts of Sydney may have had a minor negative price movement – hardly surprising after 40%+ price increase in just 3 years – but not all of it. So it’s hardly a “correction”.
And not sure how the stats are 6 months behind – they have monthly and quarterly figures including the April figures on last night’s news (May 2) which were actually positive (2.something % increase for houses and 3.something % for units).
ron goddard says
hi jon…so its go to woe, poor buggers the chinese buyers! and tickling the trust account omg!! that is the worst thing a real estate agent can do ..short of murder perhaps. being one of those, real estate agent, not murderer, i have my trust account audited every year for the past 28 years. i am clean. we real estate agents are scrutinsed, examined..have compliance tests and have to get 10 cpd points every year to keep our licences, and pay huge fees as well. so sydney agents say the chinese demise will ‘impact’ on the prices etc. wow what a genius! sometimes i wonder why people like those sydney r/e agents speak at all. if they shut up we wouldn’t know they are dummies. the whole scenario reeks of ..greed…i won’t go there today. i feel generous and give you a break. see ya
steve christo says
G’day Jon,
You’ve hit the nail on the head again …. the most important point in the whole story for me was the Australian banks willingness (over the last few years) to lend money to chinese australians that purported to have ‘businesses’ back in china which made their serviceability look good.
How they could actually afford the repayments on these properties (without putting way-too-many students into the house or unit) is beyond me. I’m glad they’ve finally had this very loose loophole snapped shut and now we are all on the same playing field.
One problem down … now I’m keen to see what happens post-election here and USA … as we come into the second half of 2016 and the oil war and currency war gets into full swing.
I’m with Stuart in relation to long term problem for Australia … once these farms are sold off they’re gone for good… so is our precious produce.
I don’t blame the farmers … I blame the politicians for not establishing a fair but firm policy for the purchase of our prime land as other countries have.
If the powers-that-be don’t bring our policy in line with other countries’ then we can kiss our ASSets goodbye and our children will be crying … not because they’re renting an apartment from international landlords but because they’ll be paying through the nose for the lowest grade of food produce left over.
Please Canberra, let’s protect our ASSets from rape and pillage. Don’t put our farmers in the position of having to decide whether to take the big offers from the overseas meg-companies with 50 year business plans whilst we don’t know what’s going to happen to our jobs and our country in the next 3 years.
Make it law. Do it now. Just like the banks were able to close the “I have income from my business overseas” loophole … almost overnight.
With much love for my country,
Steve.
trent says
Absolutely agree. Steve
Deborah Letich says
well said Steve i’m with you on our farms being sold, it is ludicrous what is happening, we should have leases on all foreign investments (like the 99 year leases is Canberra etc) when it comes to property or have certain areas where there is freehold land
Suzsi Welch says
… I read the title: “6 Hookers Go Bust!”
I thought, ‘That’s an unusual subject matter for John…?’
I really must read this stuff more carefully! LOL