Australian Broker 13.09

NEWS Banks to pay ASIC $121 million But it’s only a drop in the bucket of their cash profit P3

ANALYSIS The return of investment lending Levels of investment lending are on the up P10

OPINION How to spot a property spruiker And protect your clients P14

MAY 2016 ISSUE 13.9

BEST PRACTICE How to lead change management

Techniques to help your business transform P16

MARKET TALK First home buyers’ sweet relief Median Sydney house price falls below $1m P20

RAY HAIR Homeloans’ general manager on how brokers can make the most of an evolving employment landscape P12

FINANCIAL SERVICES “Chronic underperformance” of bank-owned super funds Should be investigated, says Industry Super Australia P22

BORROWER SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

LENDERS

No need to fear upcoming ABA review P4

ASIC’s funding boost P6

Major banks reject foreign borrowers P8

BROKERNEWS.COM.AU

FIRST HOME BUYERS TEAM UP TO BUY PROPERTY

EDITORIAL

The most difficult process when purchasing a first home:

Editor Madelin Tomelty News Editor Julia Corderoy Journalist Maya Breen Production Editors Roslyn Meredith Moira Daniels

66.1%

The ratio of surveyed people who purchased their first home with their partner, family or friend

56.8%

47.3%

Choosing what suburb to buy in

41.6%

Working out their affordability Source: St George Bank

BORROWERS THINK OF AUSTRALIAN PROPERTY AS A ‘SAFE BET’ Mortgage Choice’s 2016 Money Survey has shown that 63.7 per cent of Australians believe property is one of the safest investment options, when considering global economic and financial turmoil.

“When the respondents were specifically asked what they would invest their money in, 38.8% said property – higher than 35.3% who would put their money in a high interest savings account,” Mortgage Choice chief executive officer John Flavell said.

“This data clearly suggests that many Australians see property as a safe bet.

“They want to invest their money in something that will not only hold its value over time, but potentially deliver a strong return – and they believe property will deliver on

those needs.”

While CoreLogic’s data on national property price growth over the past few months indicates a slowing down or “cooling” across capital cities, Flavell stated the property market remains relatively robust.

“Across the combined capital cities, property prices have risen 6.4% over the 12 months to April 2016. While this level of growth is down from previous years, it is still quite robust,” he said.

“And it is not just property prices that continue to rise, with the latest data from the Australian Bureau of Statistics showing 56,562 home loans were approved over the course of February 2016 – up 1.5% from the month prior.

Flavell added that with more than $32bn in home loans having

been approved in February alone, this is indicative of the property market in general as being alive and well, and therefore a “safe investment” for Australians.

The data from the 2016 Money Survey also indicated that global turmoil is making Australians more cautious when it comes to their finances, with 55.1% of respondents stating the economic problems had encouraged them to ‘save more’.

“Australians are, on the whole, incredibly savvy when it comes to their finances. The vast majority want to make sure they are financially secure in the event that unforeseen circumstances arise.

“As a result, many are increasing their level of savings and/or looking for secure areas to invest their savings,” Flavell said.

Sales Manager Simon Kerslake Account Manager Rajan Khatak Marketing and Communications Manager Lisa Narroway

CORPORATE

Contributor Barnaby Smith

Chief Executive Officer Mike Shipley

ART & PRODUCTION

Chief Operating Officer George Walmsley

Design Manager Daniel Williams

Evaluating what properties provide good value

SALES & MARKETING

Designer Martin Cosme Traffic Coordinator Lou Gonzales

Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

Madelin Tomelty +61 2 8437 4792 Madelin.tomelty@keymedia.com.au

SUBSCRIPTION ENQUIRIES

tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au

ADVERTISING ENQUIRIES

Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak +61 2 8437 4772 rajan.khatak@keymedia.com.au Key Media Pty Ltd Regional head office, Level 1O, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 www.keymedia.com Offices in Sydney, Auckland, Denver, Toronto, Manila This magazine is printed on paper produced from 1OO% sustainable forestry, grown and managed specifically for the paper pulp industry Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss. Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

ASSOCIATION HAPPENINGS 4

DATES TO WATCH

BROKERS NEED NOT FEAR THE ABA REVIEW Following the Australian Bankers’ Association’s announcement that it will establish an independent review on product sales commissions, the MFAA has issued a response in its capacity as a mortgage industry association. The review would look to remove or change commissions where they could lead to poor customer outcomes; however, the MFAA notes that while the review will cover third parties, it will not seek to duplicate the existing, topical and widely-discussed ASIC inquiry into mortgage broking remuneration.

“The MFAA is working closely with ASIC on their inquiry into the third party channel and … the purpose of this new focus is on the broader banking sector services offering,” the statement says.

MFAA chief executive, Siobhan Hayden, expressed the association’s support of the review.

“We welcome further examination of the mortgage broking sector as an opportunity to highlight how brokers contribute to good customer outcomes. The lenders are an important part of the industry and the ABA’s focus may include a closer look at both internal and broker remuneration factors but this does not override the current ASIC review of the sector commencing in February,” Hayden said.

She went on to add that the foundation of the review is not based on any “preconceived negative view of the broker service offering”.

Rather, the ABA’s industry statement references remuneration in relation to strengthening its alignment with customer outcomes and supporting sound banking practices, and states that the ABA will work with regulators to implement any necessary changes.

Steven Munchenberg, chief executive of the ABA, stressed the importance of trust in the financial services industry.

“Trust is at the centre of banking and is critical for the stability of our financial system. The strength of our banking sector got us through the global financial crisis. Since then banks have done a lot of work in improving customer satisfaction, strengthening their balance sheets, and making it easier for customers to do their banking wherever and whenever they want.”

The MFAA’s response states that it continues to promote the positive aspects of the channel, and points out that industry partners such as AFG, Aussie, Mortgage Choice and YBR have consistently defended the model of remuneration and the transparency of upfront payments and trail, at a non-additional cost burden to Australians.

WHAT THEY SAID...

Martin North “A larger proportion of investors still think house prices will rise. There is demand. Lenders are willing to lend” P10

Phil Quin-Conroy “It doesn’t have to always be about trying to sell something, it might just be delivering a message that resonates with a customer to improve satisfaction” P18

Tony Carn “We need better education for change management and how we incentivise for quality.

You need an integrated approach” P18

A rundown of the next fortnight’s events

MAY

12 What: Broker 2020 Series Where: Perth, location TBC The particulars: The MFAA’s one-day event with a focus on young professionals, back office staff, technology, sole operators, business owners who manage staff and equipment and commercial finance, followed by an awards night recognising local excellence.

MAY

18 What: FBAA Industry Regulation Lunch Where: Eastlake Football Club, Canberra, ACT The particulars: Peter White will be conducting an open forum discussion on government, regulation and industry updates.

MAY

20 What: MFAA NT Bowls Evening Where: Darwin The particulars: An industry networking opportunity in a fun and relaxed environment.

Register your teams quickly to avoid missing out!

REGULATORY ROUNDUP 6

WORLD NEWS

ASIC’S BANK LEVY IS A DROP IN THE BUCKET

Major banks’ cash profit FY 2015

ANZ $7.22bn

NAB $5.84bn

$30bn

Total banks’ cash profit CANADA WATCHDOG WINS CASE AGAINST TREB The Canadian mortgage industry may be about to change following a decision that may force the Toronto Real Estate Board to make its sold data public.

“The Competition Tribunal has ruled in favour of the Commissioner of Competition in its abuse of dominance case against the Toronto Real Estate Board (TREB),” the Competition Bureau said in a release Thursday. “The Commissioner welcomes the decision addressing TREB’s anti-competitive practices.”

In May 2011, the Commissioner opened the drawn-out war by filing an application with the Tribunal that claimed TREB was being anticompetitive by imposing restrictions that prevent realtors from posting certain information from the Multiple Listing Service (MLS) on their personal websites, it was reported in July 2014.

The Tribunal has not yet released its reasoning for siding with the Commissioner.

“The Bureau filed an application with the Tribunal seeking to prohibit TREB’s rules that restrict how its member agents provide information to consumers, such as previous listings and previous sale prices, thereby denying agents the ability to introduce new and innovative real estate brokerage services using the Internet,” the Bureau said.

“The Tribunal’s reasons are confidential at this time; a summary of the decision is currently available on the Tribunal’s website and it is expected that a public version of the reasons will be released at a later date.”

It remains unclear what impact this will mean for Canadian homebuyers and, indeed, agents, as the Tribunal has not yet detailed how it will remedy TREB’s anti-competitive conduct. However, it may mean TREB will have to make its data public – or potentially face repercussions.

CBA $9.14bn

Westpac $7.80bn

$12bn

Income from banking fees in 2014

$121m

Banks’ share of additional profit to ASIC Source: RBA

ASIC TO RECEIVE $127M The Australian Securities & Investments Commission will receive an extra $127m, mostly paid for by a levy on banks, while a new commissioner will be appointed to focus on prosecutions, and chairman Greg Medcraft’s term will be extended by 18 months.

The chairman responded to the major banks’ contribution to the regulator’s capital injection in a statement issued by ASIC. “ASIC has long believed that those who generate the need for regulation should pay for it,” he said.

The news of the funds boost comes in the midst of Labor leader Bill Shorten’s ongoing pledge to hold a royal commission into Australia’s banks should his party win the election. The coalition, however, argues a royal commission would merely be a feast for lawyers, and says the money is better spent on boosting ASIC’s powers.

The opposition’s demands for the royal commission have been receiving strong public support, according to a recent Fairfax poll. The poll results indicate an erosion in trust in the major banks among consumers following ASIC’s

recent civil proceedings again both Westpac and ANZ for allegedly manipulating one of the nation’s benchmark interest rates.

The government’s new measures will aim to equip ASIC with greater resources, with $61m going towards enhancing its surveillance and data analytics capabilities, and a further $57m having been granted for increasing the enforcement and surveillance in areas including financial advice, responsible lending and life insurance.

“We will work with the Government and Treasury to make sure the regulatory framework allows ASIC to most effectively address market misconduct and contains the appropriate incentives for firms to put their customers first,” Chairman Medcraft stated.

All four major banks responded to the ASIC funding boost by stating that customers will in no way cop the bank’s levy through hikes in rates.

While the general response to these industry changes has been positive, the Australian Bankers’ Association has said that there is a need to be wary of any action that may have unintended consequences and adversely impact on product innovation.

LENDER UPDATE 8

MAJORS CONTINUE TO TIGHTEN LENDING TO FOREIGNERS Westpac has become the third major bank to introduce stricter criteria for foreigners wanting to purchase residential property in Australia.

At the end of March, ANZ told mortgage brokers that borrowers who generated 100% of their income from offshore would be declined.

In addition, customers whose income was more than 50% foreign-sourced would have their loan-tovalue ratios capped at 70%, meaning they would need a deposit of 30% to purchase a property.

A few weeks later, Commonwealth Bank of Australia announced it would no longer approve applications for home loans that cite self-employed foreign income, while Westpac has since gone a step further to halt all mortgage loans to foreigners for the foreseeable future.

Westpac’s harsh new measure means none of the lender’s subsidiaries (St George, Bank SA and Bank of Melbourne) can lend to any nonresidents or temporary visa holders.

Australian and New Zealand citizens whose main source of income is from overseas will also be affected. They are restricted to loans for new housing only, with the maximum amount that Westpac will lend them falling to the same percentage as Commonwealth Bank – 70% of the total purchase price.

The news was rolled out via an email from Westpac to mortgage brokers.

“At Westpac, helping Australians to achieve their goal of owning a home or investment property is core to our purpose.

BY THE NUMBERS

“For these reasons, Westpac will no longer lend to offshore customers who are not citizens or residents of Australia with an eligible visa.”

Since the stricter lending criteria has been introduced, there have been talks about a slowdown in residential construction, which would dramatically affect developers.

However, the MFAA CEO Siobhan Hayden has come out saying Westpac’s decision makes sense.

“Westpac’s policy change... reflects a prudent decision for a more balanced portfolio at this time and reduced exposure for the bank.”

According to principal at Ocean Home Loans, Brad Kirwan, who spoke to Australian Broker following Commonwealth Bank’s lending amendments, the fact that home loans for foreigners make up a relatively small segment of the market means the new policies should not have major consequences for mortgage brokers.

“This is a very small part of the overall market,” he told Australian Broker. “Self-employed foreign investors are an even smaller part of that market. Most lenders won’t accept foreign selfemployed income anyway – I’d suggest that CBA are aligning their policy with the other major banks so as not to be overexposed to one particular type of applicant.”

As for what steps brokers might take in response to these new changes, Kirwan added: “There are several large brokerages that focus entirely on the Chinese market and have done very well over the past few years, they will obviously have to reassess how they do business in the future; for the majority of mortgage brokers it will be business as usual.”

NOUGHTIE LENDING UNSURPASSED 1,800

5 years of subdued settlements

1,400 1,200 1,000

The total value in loans facilitated from 2,000+ borrowers through P2P lender, RateSetter Source: RateSetter

FAREWELL TO EVANS AS ANZ HERALDS NEW SENIOR ROLE Keiran Evans is leaving ANZ after three years as the head of third party relationship channels. Coinciding with the formal statement announcing his departure also comes the news of the appointment of a new senior role, head of retail broker distribution, which will report directly to Catriona Noble, managing director of retail distribution.

According to ANZ’s statement, “The seniority of the appointment recognises the important role brokers play in ANZ’s home ownership proposition.”

Simone Tilley, who is currently State Head for Regional Business Banking for Victoria and Tasmania, will commence in the new role on 9 May with a focus to “build upon the success of ANZ’s retail broker channel”.

Of her new appointment, Tilley stated she is keen to meet all of the broker partners she will be working with moving forward.

“I’m looking forward to joining the team and in particular, getting to know our broker partners.”

The Commercial Broker team will continue to be led by Cosi De Angelis.

LENDER ROUNDUP 3 years of settlement growth (at 16% pa)

1,600

$35m

7 years of growing settlements (at 18% pa)

800

40 35 30 25 20 15

600 400

10

200

5

0

0 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-006 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15

Residential mortgage lending 2000-2015 Lending Settlement

Source: Deloitte Australian Mortgage Report 2016

Rates

ING DIRECT

ING Direct’s three-year fixed interest rate (including a 0.10% p.a. discount) for owner occupiers with an Orange Advantage home loan has been reduced to 3.98% p.a. (comparison rate 4.66% p.a.).

The fixed interest rate discount of 0.10% p.a. applies to both new ING DIRECT customers and to existing owner-occupier Orange Advantage customers who apply to switch, split or increase a portion of their existing Orange Advantage home loan to a fixed rate loan.

The new three-year fixed rate for non-Orange Advantage owneroccupier customers is 4.08% p.a. (comparison rate 4.69% p.a.).

10

ANALYSIS THE RETURN OF INVESTMENT LENDING Levels of investment lending are on the rise again despite APRA’s crackdown on banks coming into force last year. So what factors are driving this trend and what are the opportunities for brokers?

THE CURRENT burgeoning state of the

“Australians have always had a strong love affair with property, and the environment is still relatively conducive … investment property ticks a lot of boxes” David Bailey, AFG

Australian investment lending market can be traced back to December 2014, when prudential regulator APRA announced it wanted to limit banks to growing their investment loan portfolios at less that 10% per year. The reasoning behind APRA’s decision was the accelerated state of credit growth, indicating a build-up in risk and suggesting that banks were lending too easily.

Risk is generally higher on investment loans as, should a borrower be unable to service their debt, they are more likely to fall behind on payments for their investment property than for their owner-occupier home.

The regulatory steps were required, as APRA chairman Wayne Byres put it at the time, to counter the “current level of risk and [are] targeted at specific higher-risk lending practices in individual ADIs”.

As expected, the market experienced a decline in investment lending as banks strived to fall in line with APRA’s tough new regulatory measures, with AMP going so far as to stop investment lending altogether between July and November 2015.

An overall fall in investment lending of 3.5% was registered by the ABS in May 2015; however, APRA statistics from a month later showed that, of the four major banks, only Westpac was adhering to the newly stipulated growth rate (at 9.9%).

“I think it probably caught a lot of the market by surprise,” David Bailey, COO of AFG, told Australian Broker. “I think what actually happened was that there was a relative shutdown quite quickly, making sure the cap was adhered to.”

However, after the first quarter of 2016, there are signs that investment loans are on the rise again – one reason being that banks now have spare capacity. According to aggregator AFG’s monthly mortgage index, investment

lending increased from 31% of its total volume to 33% in the March quarter. Furthermore, ABS figures show that investment lending increased by 4.1% in February after dropping 1.6% in January.

The market comes to terms with new criteria Rather than indicating any particularly unusual spike in investment lending, the new figures suggest the market is simply readjusting to normality following the immediate and perhaps knee-jerk reaction banks had to reducing their annual growth to below 10%.

“I think, over time, most lenders have become more comfortable with what their pipeline’s looking like and how they can manage to that 10% cap,” said Bailey.

“Different lenders will come in and out relatively quickly, with an opportunity to take a little bit more market share if they’re below that 10% cap. I think natural market dynamics are coming into play.”

Housing investment ever popular with consumers Another factor in investment lending’s rising popularity is that it remains an attractive option for investors who favour the security that the property market appears to offer, as opposed to the often-deemed ‘risky’ share market. “ … buying a property in the right time in the property cycle and in an area that will give [buyers] capital growth

11

over a long term gives them greater security rather than wondering what will happen in the share market,” stated Hunterwood Solutions broker Jeff Brown.

Even though banks were forced to hold off with investor lending in the aftermath of the new APRA terms, the appeal of property investment has never diminished for Australians.

Martin North, CEO of Digital Finance Analytics, told Australian Broker, “With low deposit rates and poor stock market performance, many prospective investors still choose property as a preferred investment vehicle, supported by tax breaks and low interest rates.”

North also pointed out that investment properties were a viable option for first-time buyers who could not afford their preferred owner-occupier dwellings but could afford investment properties in a less expensive area, from which they could then use the capital growth for a potential owner-occupier deposit later on.

In addition, Bailey believes there is a strong cultural attachment to investment properties in Australia, further explaining why investment lending is making such a solid comeback.

“Australians have always had a strong love affair with property,” he said, “and the environment is still relatively conducive; compared to alternative investments and yields, investment property ticks a lot of boxes.”

THE PROOF IS IN THE PUDDING

$340 million

Overall market

Increase in investment lending in the month of February

$4.7 billion

Increase in investment lending in the year to February

-10% 9% Westpac NAB

3% CBA

Major banks’ annual increase in investment lending February 2015 to February 2016

3% ANZ

Source: APRA

RISE IN INVESTMENT LENDING PROMISING FOR BROKERS AUSWIDE BANK PARTNERS WITH MONEYPLACE

The yearly Household Survey from Digital Finance Analytics (of 26,000 Australian households) continues to indicate there is strong demand for investment loans. Martin North, COO at DFA, said that with stricter lending criteria now in play some applicants would not receive their desired loans, but this didn’t mean investors wouldn’t continue to be active in the market.

“Investors are still in the game,” he said. “A larger proportion of investors still think house prices will rise. There is demand. Lenders are willing to lend.”

Michelle Hutchison of Finder.com.au agreed there was no end in sight for investment lending.

“The trend for investment lending won’t dry up any time soon,” she stated.

This can only be good news for mortgage brokers, who are responsible for 50% of Australian mortgage growth. Though acknowledging that there has been a big swing among brokers to

Investment lending to keep a steady pace With investment lending looking to continue its upward trajectory, industry figures have suggested that APRA is likely to keep a close eye on this area of the market in the coming year.

Bailey, North and Brown agreed on the opinion that APRA is unlikely to loosen its lending criteria in the immediate future, and Michelle Hutchison, financial expert at Finder.com.au, suggested that the popularity of investment lending among overseas investors might actually increase concerns for APRA. “I think APRA will continue to watch this trend very closely,” said Hutchison, “particularly with overseas investors buying property in Australia and borrowing in Australia, which could be too aggressive for property values, putting too much pressure on values as well as on competition in the market in general.”

focus on refinancing, North thinks it would be unwise to neglect the investment borrower.

“Brokers should not forget the opportunity offered by property investors, despite all the hype about falling investment momentum – it’s overdone,” he said.

“But remember that the definition of what a ‘suitable’ loan is has been subtly changed by the regulatory changes. Do not write off the investment housing sector!”

Jeff Brown of Sydney-based financial services company Hunterwood Solutions, which specialises in investment properties, agreed that opportunities remain for brokers in investment lending, so long as they are not complacent.

“Brokers need to keep on top of the updated policies to ensure that they are giving the right advice to customers,” said Brown. “Brokers can capitalise on this trend by keeping up to date with the changing landscape and keeping customers informed.”

12

COVER STORY KNOWING YOUR NICHE General manager of Homeloans, Ray Hair, discusses how the changing employment landscape is creating an opportune market niche, and why the mortgage industry is all about relationships IN JUNE 2014 after stepping into the role of general manager of Homeloans, Ray Hair told Australian Broker that his game plan was to grow Homeloans’ market share by aligning with the right brokers and getting the message out about the non-bank lender.

A year later, Homeloans reported an end of financial year growth of 24%, and for the 2016 financial year to date, has already grown by 20%.

“In terms of being in the market and the growth we’re experiencing,” says Hair, “it is a very exciting time.”

There’s no doubt that last year’s new regulatory measures have created a deluge of market opportunity for non-banks across the board, but Hair says that Homeloans is in an even more enviable position thanks to its six funding lines. This means that the lender has

incredible flexibility to cater to every sort of borrower from prime, through near-prime to what is arguably Homeloans’ specialty: self-employed borrowers relying on specialist loan products.

“By having that range of funders we can deliver products at any one time that might be more in demand than others,” says Hair.

Such products include the new near-prime home and commercial loan, Envizion, a result of a new funder relationship with RedZed, as well as the recently launched Accelerate Red Construction product, a non-conforming construction product aimed at borrowers who don’t qualify for a traditional construction loan.

“They might have that minor default – they don’t otherwise meet that credit scoring box and that product can still help them get into a house,” says Hair.

Looking for underserviced market opportunities such as this is what it’s all about, according to Hair, and

the lender’s new venture into commercial is simply an extension of the niche Homeloans currently services.

“We’ve never really had any commercial-based lending products, and so bringing RedZed on as a funder and the Envizion product range, is building on our strength as a lender to self-employed borrowers,” Hair states.

The portion of the market that their low doc and specialist products give Homeloans access to, Hair adds, shouldn’t be underestimated.

“Incrementally there’s another 5% or 10% of borrowers and opportunities in the residential market that we can now look after.”

The changing face of the Australian workforce Lenders offering specialist products can look forward to even greater loan uptake, too, if the recent Morgan McKinley APAC Employment Monitor is anything to go by. The report shows strong growth in the financial

services temporary and fixed term contract market, with the increase occurring at a much faster rate than the permanent market, monthon-month.

“If the financial services industry is an indication of the broader employment landscape, more and more people are looking to do contract and freelance work.

A flow-on effect of this could be potentially more borrowers being shut out of the prime borrower category, and forced into the non-conformist market – a market niche Hair naturally believes is ripe with opportunity for brokers.

“For various reasons be it the changing employment landscape or business landscape, and/or personal stories … the specialist and low doc products are really there to assist someone who no longer fits that static credit score model.”

And ‘static’ is a fitting word, given that despite the rapidly metamorphosing employment arena, the stability indicators that deem a borrower ‘prime’

“It comes down to relationships; it comes down to having someone who the borrower can go to who, in a sense, ‘has my back’ ”

13

approach and treating each borrower’s story as unique, can opens doors to more financially viable borrowers. “[When] those stability factors change, you need to respond to those as a lender to understand them, *Homeloans’ EOFY and that’s where your growth 2015 specialist products come in,” he says. “It’s Source: Homeloans a big, big market … [it’s] understanding the person’s situation.” seem relatively unchanged.

“The traditional prime Broker building borrower is all about stability As for where brokers fit into … that could be simple things Homeloans’ market plans like, everyone used to have in 2016? Front and centre, their own telephone land line according to Hair. but that’s no longer the case “We’ve re-engaged with the … so you’ve actually go to broker market in past two accept the fact [that] any one or three years … 95% of our of those, slightly out of the business comes from brokers, ordinary and you don’t fit that so it is the major distribution credit score. channel for a number of “A stability indicator is how players, but particularly us.” often you’ve lived in one place, When asked why brokers but we do move more often would go to Homeloans over now, people move for their another lender, the smile on jobs more often etcetera so Hair’s face says it all. these are now no longer the “The reason I’m smiling is stability indicators they once because it’s not rocket science,” were,” Hair says. he says. “It’s about service, it’s He adds that if lenders about people. The advantage aren’t willing to take into we have over the bigger banks account changing lifestyle is we are not a factory … factors such as these when Ours is a people business … assessing a borrower’s ours is about a partnership application, they are shutting with a mortgage broker. And out an entire section of the we want that broker to see borrower market that could our BDM as someone who’s potentially service their loans experienced, who can sit as well as any traditional down and workshop a deal borrower. and understand why it might And this is where having not fit the factory mentality of a strong credit team makes the bigger lenders who really a difference, he says. Having can write business, but it’s an individual, personalised

LEADING THE CHARGE

24%

not worth their while going outside of the norm because they’re writing so much of it,” he explains.

“We’re much more flexible because we can actually sit down, have a look at the deal … and engage with the borrower, and with the broker.

So our job is to make the broker look good, and to make that service experience seamless and smooth, but provide them access to pretty much mainstream products as well as specialist or near-prime products, and giving them that full range, if you like.”

For Homeloans, continually delivering an experience that’s consistent, meets expectations and that gives the broker confidence in dealing with them, is of utmost importance. And this is where Hair believes Homeloans can continue to drive its mandate to grow – the mandate stipulated back in 2014: by being there for brokers, who in turn can be there for their clients, no matter what type of borrower they are.

“We want to be seen as someone that a borrower or a consumer is comfortable with and is aware of to make it easier for the broker to sell us as an alternative.

“It comes down to relationships, it comes down to having someone who the borrower can go to who, in a sense, ‘has my back’. And because the mortgage is a central part of every person’s financial journey, the broker is in a really, really strong position to leverage that.”

CONTRACT WORK ON THE RISE?

Contract (non-permanent) job availability in financial services industry, Asia-Pacific

50%

quarter on quarter up 50% Q4 2015 v Q1 2016

54%

year on year up 54% Q4 2015 v Q1 2016

Source: Morgan McKinley

14

OPINION PROTECTING YOUR CLIENTS David Pascoe explains how brokers and financial advisors can spot a property spruiker and protect their clients’ best interests

David Pascoe is the author of Australian Property Investment Scams Exposed www.davidpascoe.com.au

strategies to property investors, blocking off alternative strategies which might actually work better for them.

Some property marketing companies will present all their properties as negatively geared properties, telling your clients that they should never, ever buy a positively geared property, and some so-called property investment experts say that they should only ever buy a positively geared property. The reason they do this is simply to make sales – the properties they are pushing are often those they want to get rid of and that’s the only stock they have available to sell.

The decision to invest in a positively or negatively geared property depends on each individual client’s situation at the exact time of purchasing, and there is no one-size-fits-all approach.

Be wary of recommended and sold properties from stock and product lists It’s common to think that purchasing an investment property from a property investment company’s list of stock is the norm. But an ethical dilemma comes into play in finding out the nature of how the investment company found and sourced this type of stock to begin with. Sometimes, the property product list is leftover stock – the properties that can’t be sold by developers themselves. Clients need to be very careful of the company’s intent to sell them something from their ‘stock list’ as it might be a dangerous investment that doesn’t suit their needs.

WITH AUSTRALIAN interest rates at an all-time low of two per cent, the number of Australian investors looking to purchase property has been skyrocketing. At $6trn, the property investment industry in Australia is worth more than the stock market ($1.7trn) and superannuation ($2trn) industries combined.

But despite the potential benefits and returns for Australian investors, it has yet to be regulated by an official governing body, and many people don’t realise that there are crooked, money-grubbing property spruikers looking to take advantage of your clients at

properties in ‘boom towns’ that could, in reality, see them going bust.

So whilst the idea of a thriving property investment industry is appealing to mortgage brokers, they also know that the most important thing is integrity in business and doing the right thing by the customer – after all, helping a client succeed is what ensures ongoing repeat business and referrals.

If your clients are looking for investment advice, be sure to arm them with the following insider tips before they make any rash decisions that could affect their financial future.

There aren’t any licence requirements to sell an investment property and there are no legal parameters for running a seminar or education night ... You don’t even need to be a real estate agent to offer property advice the first opportunity.

There are precarious property seminars popping up everywhere, with ‘expert’ speakers advising impressionable attendees to take out home equity loans to purchase multiple

Stay away from one-size-fits-all, black-andwhite gearing strategies There are many companies out there holding free property investment ‘education’ seminars, promoting very simple, black-and-white gearing

Know when you’re receiving legally unqualified advice There aren’t any licence requirements to sell an investment property and there are no legal parameters for running a seminar or education night, other than staying within the obvious laws, and many seminars are on the border of this at times. You don’t even need to be a real estate agent to offer property advice.

There are some property marketing companies who do have their sales people and management licensed as real estate agents, however, a real estate agent is not permitted to give any advice to their clients on mortgages, accounting, loans, structures, setups, taxation, depreciation or financial advice. They are also prohibited from giving capital growth predictions or return suggestions.

The problem is that there’s a fine line between helping a client out by offering a little sage advice gained from experience, and offering extensive advice under the pretence that you are qualified to do so. Many clients don’t know about these advice parameters, which is why not many recipients of the advice will object or report it.

While real estate agents all want that slight edge – something that makes them stand out in the market – they are simply not permitted by law to provide a single hint of advice if they are not licensed and qualified to give it. This also applies to financial planners, tax accountants and mortgage brokers, as recently seen when an Australian finance broker breached his duty of care and offered unqualified advice, which resulted in a $115,000 fine.

16

BEST PRACTICE HOW TO LEAD CHANGE MANAGEMENT

success of the initiative. Then conduct everyday business with those behaviours front and centre.

Senior leaders must visibly model these new behaviours themselves, right from the start, because employees will believe real change is occurring only when they see it happening at the top of the company.

4

Change has the best chance of cascading through an organisation when everyone with authority and influence is involved. In addition to those who hold formal positions of power – the company’s recognised leaders – this group includes people whose power is more informal and is related to their expertise, to the breadth of their network, or to personal qualities that engender trust. Companies that succeed at implementing major change identify these people early on and find ways to involve them as participants and guides.

DeAnne Aguirre and Varya Davidson, senior partners at Strategy&, explain five techniques that can help businesses transform quickly and effectively SINCE THE mid-2000s, organisational change management and transformation have become permanent features of the business landscape. Vast new markets and labour pools have opened up, innovative technologies have put once-powerful business models on the chopping block, and capital flows and investor demand have become less predictable. To meet these challenges, businesses have become more sophisticated in the best practices for organisational change management. The costs are high when change efforts go wrong – not only financially but in confusion, lost opportunity, wasted resources, and diminished morale. When employees who have endured real upheaval and put in significant extra hours for an initiative that was announced with great fanfare see it simply fizzle out, cynicism sets in. The following list of five guiding principles for change can help executives navigate the treacherous shoals of transformation in a systematic way.

1

Lead with the culture

Lou Gerstner, who as chief executive of IBM led one of the most successful business transformations in history, said the most important lesson he learned from the experience was that “culture is everything”. Business people today understand this. Skilled change managers, conscious of organisational change management best practices, always make the most of their companies’ existing culture. Instead of trying to change the culture itself, they draw emotional energy from it. They tap into the way people already think, behave, work and feel to provide a boost to the change initiative. To use this emotional energy, leaders must look for the elements of the culture that are aligned to the change, bring them to the foreground, and attract the attention of the people who will be affected by the change.

Make the rational and emotional case together Leaders will often make the case for major change on the sole basis of strategic business objectives

2

such as “we will enter new markets” or “we will grow 20% a year for the next three years”. Such objectives are fine as far as they go, but they rarely reach people emotionally in a way that ensures genuine commitment to the cause.

Human beings respond to calls to action that engage their hearts as well as their minds, making them feel as if they’re part of something consequential.

3

Lead outside the lines

Leverage formal and informal solutions Persuading people to change their behaviour won’t suffice for transformation unless formal elements such as structure, reward systems, ways of operating, training, and development are redesigned to support them.

Many companies fall short in this area. However, even when the formal elements needed for change are present, the established culture can undermine them if people revert to long-held but unconscious ways of behaving. This is why formal and informal solutions must work together. This includes tapping into informal networks and informal leaders such as those who are influential due to their personalities or experience rather than their position in the company. By asking people at every level to be responsible for quality, and by celebrating and rewarding improvements, change leaders are able to create an ethic of ownership in the product, and vanquish the old ethic: “We just do what we’re told”.

5

Act your way into new thinking

Many change initiatives seem to assume that people will begin to shift their behaviours once formal elements like directives and incentives have been put in place. People who work together on cross-functional teams will start collaborating because the lines on the chart show they are supposed to do so.

Managers will become clear communicators because they have a mandate to deliver a message about the new strategy. Yet lines on a chart and bold statements of intent have only so much impact. Far more critical to the success of any change initiative is ensuring that people’s daily behaviours reflect the imperative of change. Start by defining a critical few behaviours that will be essential to the

BABY STEPS LEAD TO BIG CHANGES

1 culture Lead with

2 emotion Engage

Start

CHANGE MANAGEMENT End

5 solutions Leverage

4 key players

3 behaviour Focus on

Involve

Source: Strategy&

18

INDUSTRY SPOTLIGHT STAYING AHEAD OF THE CURVE Two of the industry’s leaders in technology explain the innovations that are shaking up the mortgage landscape in 2016, whether brokers are ready for them or not

Keeping up with technology Amidst the never-ending influx of technology innovations permeating our daily lives, it’s easy to get left behind. Leave it to Tony Carn from tech company NextGen.Net and PLAN’s Phil QuinConroy to sift through all the, well, data, and pinpoint the industry’s key, can’t-miss innovations, to outline exactly where the ever-changing technology landscape leaves brokers and their businesses.

To start with: NextGen.net’s ApplyOnline app, which was launched in December and allows brokers to view and track their entire pipeline, search for specific loans and set preferences for push notification status updates.

“Our app has been a really important rollout for us,” said Carn. “It allows brokers to more closely manage their pipeline irrespective of where they lodged the loan application … [and] for all our ApplyOnline lenders (which is basically everyone) they can track those loans in real time, and that has a lot of benefits.”

In upcoming updated versions of the app, brokers can expect further features including the ability to scan and upload supporting documents using the app, much in the same way that the Uber app ‘captures’ a user’s credit card details using a phone’s camera.

Another development that went live on the ApplyOnline platform in February was electronic lender documents. This means that now, both incoming and outgoing documents can be sent electronically and monitored in real time, with no risk of emails or loan contracts getting lost in the process.

“The amount of interest that that generated was phenomenal,” says Carn.

Online innovations Last year’s innovations around enabling brokers to order evaluations in ApplyOnline, Carn says, have also allowed the smarter use and reuse of data, which has been increasing cross-sells over the last year, assisting broker diversification into areas such as commercial and asset finance.

TURNING TO TECHNOLOGY

Growth in ApplyOnline applications 611,815

600,000 542,634

550,000 500,176

500,000 450,000

415,396

400,000 350,000 300,000

369,587 316,571

250,000 200,000

2010

2011

2012

2013

2014

2015

Source: NextGen.Net

“A lot of new players are cross-selling nonmortgage products, enabling a lot of new lenders to the market as well,” says Carn. “Diversifying

around asset finance, credit cards, insurance and commercial loans is a great benefit, and broker groups are all pretty keen to drive that.”

In response to this growing space, asset finance loans will go live on ApplyOnline over the next month with major lender, ANZ – just the first of many, according to Carn.

“The interest from all other lenders following that’s been quite substantial so we look to fill that entire market out over the next 12 months,” he says.

For brokers, the appeal of online asset finance applications is obvious with one look at the current system in place.

“Because asset finance apps as they’re done at the moment are either manual or direct to a lender, and they’re outside of the ecosystem, the broker groups can’t see them, can’t track them, [and] they don’t know what’s happening.”

By contrast, he says, ApplyOnline gives brokers access to of all their loans in the same ecosystem, so they have full transparency across all products, allowing them to leverage the data that they’ve already got to do more applications. Pre-populating loan applications in this way, Carn adds, “will be a real game changer over the coming years.”

The ability to process commercial loans online is another benefit brokers will have access to next month, and it’s an area Carn highly recommends mortgage brokers break into.

“That’s where the opportunity for brokers – not just for lenders but for brokers – is, doing the simple commercial stuff.”

While not everybody’s a commercial broker, he

19

“Don’t fear it and don’t put your head in the sand about the technology that’s in front of you … I think that’s a really dangerous thing to do” Tony Carn, NextGen.Net

Tony Carn

Phil Quin-Conroy

adds, ApplyOnline will make simple commercial requests headache-free because the online solutions are so intelligent that they can adapt to multiple products. Equipment finance, SMSFs and other products are all within easy reach, and this immediately opens up distribution to lenders, better enabling brokers to diversify income streams.

Carn is also adamant that the electronic verification of applicants is quickly gaining traction in the industry, as will electronic signatures in the year ahead when NextGen.Net launches SignOnline.

“We’re working with two lenders to deliver that at the moment so that will give the broker the ability to send the loan application to the applicant electronically and sign within the ecosystem of ApplyOnline,” he says.

PLAN’s chief executive Phil Quin-Conroy is also confident that electronic signatures will make headway in 2016.

“I think that is an area that will start to take off.

DocuSign – we spent some time with them in San Francisco – they’re doing some really interesting stuff right around the word, around electronic signatures and that’s an area that we as a business are pushing into quickly,” he says.

Leveraging data PLAN’s Phil Quin-Conroy believes one of the greatest things about the new technology entering the mortgage industry is how it can be used to solidify customer relationships and improve retention.

“We want all parties to be able to communicate the status of where a particular loan is at and if the customer can be easily looped into that via the broker, I think that’s a really important piece,” Quin-Conroy says.

The high volume of data that is available to brokers, he adds, equips them with everything they need to conduct segmented marketing, and communicate relevant messages to individuals based on their needs and preferences.

“We’ve spent a lot of time with brokers talking about the benefits of capturing data and CRM and we’re now shifting the emphasis to spending more time thinking about how to use that in intelligent ways and communicate that to customers. It

doesn’t have to always be about trying to sell something, it might just be delivering a message that resonates with a customer to improve satisfaction that will lead to stronger retention, more referrals and more repeat business down the track as well.”

Leveraging data, Quin-Conroy adds, is paramount for the ongoing management of the customer.

“I think there’s a real opportunity for us as an industry to improve on that front. Let’s leverage data to push that to the fingertips of brokers – to assist them to understand the current status of a client with that lender so a broker’s able to proactively manage that … [Data can] assist a lender with their focus around cross-selling to a customer, delivering to more of an individual customer’s needs, and also to assist working with the lender around retaining that customer. The more we arm the key advisor in the relationship (who’s the broker), the better,” Quin-Conroy says.

A call to action Despite the greater efficiency new technology facilitates, the take-off of much of the already available technology in the industry has not been as rapid as either Carn or Quin-Conroy would have liked.

Quin-Conroy believes this comes down to large institutions and the industry as a whole being used to doing things in a particular way.

“We’ve got large institutions and a whole industry that’s been used to doing things in a particular way, and a couple of different components in the value chain that have to change the way they’re doing things, and sometimes that takes a little while. And it’s a classic example of technology being there to facilitate it, but the change management hasn’t occurred to drive the uptake.”

Nextgen.net’s Tony Carn agrees, suggesting that the resistance to change itself, rather than the technology itself, has prevented the rapid uptake of new innovation in the mortgage arena, and that both change management and the introduction of incentives will remedy this.

“We need better education for change management and how we incentivise for quality.

You need an integrated approach.

“Because we manage the back channelling of status updates on every application, it provides not only a pipeline view of people’s application portfolios, but also how quickly they react to them, so lenders can track using data they have in ApplyOnline to determine their average conditional approval turnaround for the month to date, how quickly [they’re] getting documents out to the customer, and how fast they are coming back.”

A smarter use of data on the lender’s part, Carn says, means they can monitor and then benchmark broker performance, then implement rewards such

as a better service guarantee, or perhaps better commission, which would in turn encourage a greater uptake and usage of the new mortgage technologies and data that help brokers to meet these benchmarks.

“We are starting to see those incentives creep in which is great,” Carn says.

On the horizon This year, Carn believes the industry can expect the mandating of electronic supporting documents, and this will also accelerate technology usage, encouraging more brokers to step up. For NextGen. Net, supporting document uploads will continue to be a focus this year in anticipation of that event.

“We’ve got Commonwealth Bank and ANZ committed to rolling that out over the next few months which means all the major banks and all the non-major banks bar one non-major bank now offer that functionality, so that’s the standard across the board now.”

As for some words of wisdom that Carn can offer brokers who are still reluctant to use new technology, he says the first step is “embracing the technology rather than fearing it. Don’t fear it and don’t put your head in the sand about the technology that’s in front of you … I think that’s a really dangerous thing to do”.

DATA DOWNLOAD GROWTH DRIVEN

BY APP USAGE

27% Increase in volume of data downloads from June quarter 2015 to December quarter 2015

21.3 million

Mobile handset subscribers in Australia as at 31 December 2015 - an increase of 1.4% from 31 December 2014 Source: ABS

20

MARKET WRAP MARKET TALK

FIRST HOME BUYERS’ SWEET RELIEF Domain Group’s March quarter house price report shows the median house price in Sydney has dropped below $1m for the first time in a year THE ONLY CAPITAL CITIES where house prices didn’t fall in the first quarter of this year were Melbourne and Hobart, where prices rose by 1.2% and 4.3% respectively, according to Domain. Apartment median prices also fell in every capital city after the building of a record number of apartments in most capitals.

Hobart’s median house price of $360,212 is still only one third of Sydney’s median price of $995,804, making it the most affordable of all capitals across the March quarter, despite its quarterly growth.

Melbourne experienced the strongest year-on-year house price growth as at March 2016, with an 11.8% increase. The Victorian capital’s median house price was $726,962 as at the end of the March quarter.

“It is a new reality. Say goodbye to the boom and bust,” Andrew Wilson, Domain’s chief economist, told the Australian Financial Review.

“The national median has now fallen over two consecutive quarters for the first time since June 2011 as the general housing market correction consolidates ... it’s the sharpest fall we have had.”

Wilson told the AFR that the falling house and unit prices in most capital cities were a result of weakening economic activity and growing uncertainty among fragile consumers and investors; however, the drop in house prices in Sydney will come as a relief to those first home buyers who have continued to be pushed out of the housing market over the past three years.

“The outlook for house prices remains subdued ... the prospect of weaker house price growth, however, will be welcomed by prospective first home buyers still struggling to get into the market.”

National Australia Bank added that aiding first home buyers further is the fact that foreign buyers have pulled back on

SYDNEY AND MELBOURNE TO THANK FOR 2015 HOUSE PRICE GROWTH

AUSTRALIA’S SOARING RESIDENTIAL APPROVALS

$

$

$

residential purchases, which have fallen to a two-and-a-half-year low following the banks’ implementation of tighter lending restrictions to offshore buyers.

Just 11.8% of the total new property sales in the March quarter were to foreign buyers, having plummeted from a 16.8% peak in September 2014, according to NAB’s Quarterly Australian Residential Property Survey.

Despite these welcome signs, however, Wilson conceded that it would still be a long journey for first home buyers in Sydney, with housing prices still extraordinarily close to the $1m mark.

Domain’s report showed Brisbane’s unit prices have fallen for seven consecutive quarters, with the median unit price sitting at $367,058, and the average house costing $512,809. Adelaide house prices have remained at a $491,422 median, while Darwin median house prices fell the most, by 4.9% over the quarter, to $610,305.

$

$60.75bn The total value of residential investment approvals 2014/15 Source: FIRB

7.4%

Year-on-year Australian house price growth in March 2015 Source: Fitch Ratings

21

APRIL’S SUB-70% CLEARANCE RATES, COOLING SET TO CONTINUE

Weekly auction clearance rate, combined capital cities

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% April 10

Weekly auction clearance rate April 11

April 12

4 week average April 13

April 14

April 15

April 16

Source: CoreLogic RP Data

Home Loans Ltd HOME LOAN MARKET DIPS TO 16-YEAR LOW The Australian home loan market has been hit by the most dramatic slide in home loan sizes since 2000, according to a new study by comparison website Finder.com.au.

Analysing data from the ABS, Finder has found that banks are pulling back on mortgage lending as the national average home loan size falls to $357,200, 4.08% lower than in February 2016.

Furthermore, the national home loan size has decreased by 7.71% (or $29,100) in total in the past three months to February, marking the biggest three-month drop since May–July 2000, when the decline was 7.74%.

February 2016 also marks the first time the average loan size has dropped by more than 1% in three consecutive months.

The steepest decline was to be found in NSW, where the average home loan size shrank by 5.75% in February.

On a quarterly scale, the average home loan size in NSW dropped a huge 10.15% ($45,500), the biggest decline on record.

Bessie Hasson, financial expert at Finder, believes the decline is due to tougher bank lending policies introduced in 2015.

“A cooling property market has led to shrinking maximum loan sizes following the Australian Prudential Regulatory Authority’s changes to investment lending,” she said.

“Banks are scrutinising new loan applications more closely, taking a tougher line when assessing borrowers’ income.”

When asked what the consequences of the decrease in home loan sizes might be for mortgage brokers, Hasson said, “With loan sizes shrinking and interest rates competitively low, mortgage brokers will have to work harder to drum up the same level of business as they did before mid-2015.

“Not only this but the actual number of people applying for loans is slowing also.

“Thus we can expect a lot more competition in the home loan market, which may be a good thing for first-time buyers who are lucky enough to have a deposit saved, but may not be for some small lenders who may struggle to compete.”

1/3 AD

22

MARKET WRAP FINANCIAL SERVICES

‘CHRONIC UNDERPERFORMANCE’ OF BANK-OWNED SUPER FUNDS New data shows industry super funds have outperformed bank-owned super funds by 2.15% over 10 years INDEPENDENT research measuring the performance of Australia’s superannuation funds shows not-for-profit industry super funds continue to outperform ‘for profit’ bank-owned and retail competitors despite market volatility.

The latest SuperRatings monthly data shows, on average, that industry super funds have outperformed bank-owned super funds by 2.15% over 10 years.

“Consistent outperformance by industry super funds over bank-owned super funds reflects the differences between for-profit and not-for-profit business models and investment philosophy. There is no doubt that these are key drivers in performance outcomes,” said David Whiteley, chief executive of Industry Super Australia.

“Industry super funds deliver all profits to members, aiming to maximise returns for members with a broad investment

portfolio, which remains resilient when the market dips. Investing across a range of asset classes, particularly long-term, physical assets such as infrastructure, helps protect against market volatility.”

Whiteley said this new data should compel policymakers to find out why bank-owned super funds have consistently delivered lower returns to their members than industry super funds.

“The chronic underperformance by bank-owned super funds highlights concerns over the banks’ vertically integrated business models, which continue to drive lower returns for their members.

“The ‘for-profit’ culture enshrined in the banks’ business model raises questions of the appropriateness of banks’ involvement in superannuation, given super is a mandatory savings system central to Australia’s longterm economic and social prosperity.”

INDUSTRY SUPER FUNDS CONSISTENTLY OUTPERFORM BANKS

Industry super funds’ vs bank-owned funds’ return on super Industry super funds

Outperformance

Bank-owned funds

Rolling 1 year %

-0.27

3.17

-3.44

Rolling 3 year %

8.53

2.49

6.04

Rolling 5 year %

7.57

1.87

5.7

Rolling 7 year %

8.8

0.73

8.07

Rolling 10 year %

5.24

2.15

3.09

-5 -4 -3 -2 -1

1 2 3 4 5 6 7 8 9 10

10 9 8 7 6 5 4 3 2 1

-1 -2 -3 -4 -5 Source: SuperRatings

23

APARTMENT OVERSUPPLY COULD LEAD TO FINANCIAL INSTABILITY, WARNS RBA In its semi-annual health check of the financial sector, the Reserve Bank of Australia has stated that a glut of inner-city apartments and an influx of Chinese money into the property market is shifting the risks in the banking system.

According to a report by the Australian Financial Review, the Reserve Bank’s Financial Stability Review issues warnings about the “indirect” risks facing the property market, and warns that the supply of new apartments in major metropolitan cities could “weigh on prices and rents”, which could reduce the income of property investors and make it harder for them to sell.

“With the demand for apartments softening in some areas … and households facing tighter access to credit, settlement failures might increase,” the RBA said.

The Financial Stability Review comes following APRA’s crackdown on banks’ lending to property speculators, a measure that has decreased the risk of a housing bubble but potentially involuntarily created ‘challenges’ in the apartment construction market given the volume of building undertaken.

The Reserve Bank stated in its review that it had concerns about the “significant and increasing” role of Chinese investors in the Australian property market, which it said presented “indirect risks” to the financial sector. “… if Chinese demand were to decline significantly, that could weigh on domestic property prices and so lead to losses on the banks’ broader property-related exposures”, the review stated.

Currently, Chinese buying is concentrated in off-the-plan apartments in Sydney and Melbourne, with Foreign Investment Review Board data suggesting a “substantial” increase of late.

The threat of rising settlement has been an issue of intense scrutiny for major apartment developers Lendlease and Stockland, which both downplayed the impact at their half-year profit announcements.

CHINESE DEMAND STRONG… FOR NOW China as proportion of total foreign investment

0.46%

Value by industry

Others* $6,163m

22.29% Services $6,163m

$m

27,650

20.46%

Mineral exploration and development $5,656m

11.93% Manufacturing $3,298m

44.87% Number of approvals

Real estate $12,406m

Total approvals

41%

24,820

Other 10,104

*Agriculture, forestry & fishing, finance & insurance, resource processing

59% China 14,716

Source: FIRB

Luddenham Raceway 2/3 AD

24

SPOTLIGHT BEST COMMENT ONLINE

FORUM

BROKER FEARS RIFE The major banks’ announcements that consumers will not be hit with the ASIC levy have sparked fear among brokers that they will have to bear the brunt of the $121m fee

THE GOVERNMENT has raised the levy

that banks must pay to the corporate regulator by $121m, in a move to ensure that banks and financial institutions are responsible for funding their own regulatory body, however all four of Australia’s major banks have ruled out passing on the levy to customers.

But comments on brokernews.com.au indicate that while this is good news for tax payers, this may not be so good for brokers.

Really? is resigned to the idea of brokers having to contribute to the banks’ levy out of their commissions, stating the reason for the banks’ announcement is “because they’ve already decided to pass it on to brokers. Westpac announced within 24 hours that they are reviewing commissions. My guess is their share of the $120m will be raised from us.”

However, despite no official proclamation

by Westpac that they will be reviewing broker commissions specifically, but rather they will be cooperating with the Australian Bankers’ Association’s review into products and sales

commissions in the broader banking industry, brokers have been quick to assume the worst.

“Yep, it appears that brokers will pay once again and the PAYG employees of the MFAA, FBAA and all the aggregators will accept this as progress within our industry. Commissions relating to poor customer outcomes can be attributed to the banks’ internal financial planning arms, so to conveniently add brokers into this commission issue is a farce. Stand by for months of insulting dribble from all parties involved, and expect yet another haircut to your income,” said Broker.

Ozboy was even harsher in his judgment of major lender, Westpac, which he believes has a “track record for this type of behaviour”.

“If commissions get targeted then I will be targeting my federal member. Banks have a nerve don’t they … call me a cynic but the banks get charged the extra ASIC funding and then they (will) put the rates up independently of the RBA – that’s worth a lot more than a measly $120m,” retorted SEQ Broker.

DALEY HITS BACK AT PM CRITICISMS OVER NEGATIVE GEARING One commenter has come out with a lengthy response to the Grattan Institute’s report that recommends restricting negative gearing deductions to non-wage income, and cutting the tax discount for capital gains from 50% to 25%.

“It’s always good to engage in debate about policy options, but I do wonder why our economists fail to see the benefits on negative gearing when they are forever highlighting what they perceive to be the inefficiencies of it.

It makes me question if they actually understand what it is and why it is so important to the nation.

For example, an investor purchases a property. They pay Stamp Duty locally, so a funding boost for the local State Government, no exceptions, if or buts … The investor (generally for a recent purchase) has to subsidise the mortgage payment from his/her/their personal income. The rental income is normally insufficient to cover the loan repayment, and that effectively equates to a rental subsidy – the investor subsidises the cost of the providing accommodation to the tenant. Then the investor pays for all the maintenance costs related to the property, and they pay rates AND Land Tax to the State Government. Strangely enough, these taxes paid locally never seem to enter into the equation when the cost of Negative Gearing is mentioned.”

Tom on 28 Apr 2016 at 10:38 AM To read the full comment head to www.brokernews.com.au/forum/

26

SPOTLIGHT VIDEO SPOTLIGHT

ONE YEAR ON

WHEN WILL THE BUBBLE BURST? With concerns about apartment oversupply and a market fallout as far back as 2014, there continue to be strong opinions on both sides of the fence in 2016 21 JANUARY 2015 Guy Bruten, a senior economist at AllianceBernstein, says there are signs of oversupply starting to emerge in pockets of the market and there is a clear risk that falling house prices may be the next phase in the post-commodity-boom adjustment story

24 SEPTEMBER 2015 Roy Marcellus, sales and marketing director at Developer Crown Group, tells Domain the idea of Sydney being hit by oversupply is “crazy”, that the city is only now catching up on a big shortage and there are many buyers, with nowhere near enough supply for them

5 FEBRUARY 2016 Responding to NAB group chief economist Alan Oster’s statement that there is a “degree of unpredictability” in the market outlook, Todd Hunter, founder of buyer’s agency wHeregroup, says his prediction is conservative, and that oversupply is a huge issue for most unit markets across Australia. “Just about every capital city is already way oversupplied and there’s a ton more coming as well,” he says

19%

14 APRIL 2016 A report by real estate group JLL Apartment reveals that prices in inner-city Sydney fell by up to 19% in the final quarter of 2015, drawing parallels with the similarly inauspicious apartment market in Melbourne’s CBD and suggesting an excess of apartment supply in relation to demand

24 JUNE 2015 Economists Lindsay David and Philip Soos of LF Economics go on the record stating that Australia’s housing shortage is fictitious, and in fact there is an overall oversupply of housing, to the tune of 165,000 properties. They say the country’s ever-rising house prices are a result of artificial demand and an oversupply of mortgage debt, and a “bloodbath in the housing market” is a “near certainty”

14 DECEMBER 2015 Mark Mendel, chief executive of off-the-plan consultancy firm iBuyNew, states: “We might see some little pockets of oversupply, but in places like Melbourne or Brisbane there have been a lot more apartments go up and they’re still selling. Vacancy rates there may be a little higher, but they’re nothing terrible” 7 MARCH 2016 Sujit Dey, hedge fund sales desk’s executive director at JPMorgan Chase & Co. in Sydney, writes in a note to his clients that home values may drop 5–10% due to an oversupply of apartments and tighter lending by banks, but they are unlikely to slump more, unless there are sudden increases in mortgage rates and unemployment

20 APRIL 2016 SQM Research managing director Louis Christopher states that, despite “current misperceptions over areas of oversupply”, overall national vacancy rates remain steady and the data suggests that the areas of oversupply are confined to Perth, Darwin and the Brisbane CBD

Angus Sedgwick

BROKERS SHOULD MEET TIM Speaking to Broker TV, The Invoice Market’s (tim’s) Angus Sedgwick talked about the opportunities that lie in the cash flow and invoice funding market, and stressed the importance of looking past clients’ personal product needs, to examine their potential business needs.

“There’s a massive opportunity for brokers to get involved in the debtor funding world,” he said.

“You don’t have to not do your mortgage broking,” he added. “Do them both. Add another string to your bow.”

He elaborated that while mortgage brokers have enjoyed their time in the sun over the past three to four years, this might change over the next 18 months, so adding invoice funding and debtor funding to their product offering would simply bolster their value proposition.

“They shouldn’t be worried about it,” he said. “It’s just another service.”

As far as how brokers can go about stepping into uncharted territory, Sedgwick explains that it’s as simple as when you’re talking to a client about their mortgage; just start asking questions about their business too.

“Ultimately it’s his business and the success of that business that’s going to pay him a wage or a director’s fee to pay his mortgage,” he says.

This means that moving the conversation out of basic personal financial needs and over into their potential commercial needs can only be a good thing for both parties.

To help brokers on this path, tim offers workshops aimed at educating brokers on selective invoice funding, debtor funding and how brokers and their clients can benefit from these. Attending one of these workshops is a no-brainer, according to Sedgwick.

“Why would you not invest half a day to learn some information you may not previously know?” he said.

As for where brokers fit into tim’s growth strategy, Sedgwick is not shy about the company’s reliance on brokers, whose referrals currently account for 50% of tim’s business.

“We see the broker market being crucial to the success and the growth of the invoice market,” Sedgwick said.

“That intermediary space is where we really see the bulk of our business coming from over the next period of time, so we really want to be strongly pushing into educating, [and] working with brokers, assisting them to help their clients get the best result.”

28

PEOPLE LOCKED UP… FOR A GOOD CAUSE YBR’s executive chairman did some time in ‘jail’ recently and the $10,000 bailout went straight to charity

“The PCYC are making a big difference in the lives of our young people and are keeping them off the street”

YELLOW BRICK Road’s Mark Bouris was recently ‘locked up’ in Martin Place, Sydney, to raise awareness and funds for the NSW Police and Citizens Youth Clubs (PCYC) Time4Kids charity.

Not to be bailed out until he reached his goal of $10,000 in donations, it only took him the best part of a morning until he was free again.

“I’m lucky that my family, friends and business really get behind me and support this cause,” says Bouris.

“I first connected with [the PCYC] when I started boxing training at a local PCYC club. In general, supporting our police officers is a cause that’s very important to me. The police are out there risking their lives to protect us every day, and they don’t get paid well for that. For me the risk and reward don’t seem equal or worth it. But they do it anyway. For that I think we should all be willing to give something back.”

Bouris is also an ambassador for the NSW Police Boxing Association and through that supports the PCYC as well as the NSW Police Legacy.

“The city event itself is getting more and more support. They had Commando down there in a boxing ring – I wouldn’t [mind] jumping in there next year!

“The PCYC work with young people who have grown up in a difficult background or have made mistakes early on. I believe everybody still deserves an opportunity to make changes and succeed in life. By providing a place to go and people who care about these kids, the PCYC are making a big difference in the lives of our young people and are keeping them off the street. Going to ‘jail’ to raise awareness of this important cause is only a small thing I can do to contribute.”

For the fifth year running, Bouris was kept busy while behind bars, meeting the police officers, case workers and kids that were helping out with the fundraiser, and taking photos with volunteers and spectators.

But what about any fears that he wouldn’t get bailed out?

“Well, thankfully for me, Yellow Brick Road wants to keep me as their executive chairman and are happy to support the cause,” says Bouris. “So they will usually jump in and bail me out if I need a boost! However, I try to make sure I don’t irritate anyone too much

in the days prior so they don’t decide to teach me a lesson and leave me locked up in Martin Place overnight!”

The money raised will help support the 60 clubs throughout NSW where youth case managers work to keep at-risk youth off the street.

Bouris said the best part of the day is meeting the kids that are being helped by the program. Hearing their stories about the difference the program makes, he says, makes ‘going to jail’ worth it.

The Earlwood YBR branch also got involved with its local PCYC in Marrickville, sponsoring its Time4Kids basketball tournament and also experiencing a mock lock-up.

“Many of our branches supported bailing me out of jail, but it would also be great to see more of them engaging with their local PCYCs and sponsoring their Time4Kids events,” says Bouris.

29

CAUGHT ON CAMERA On 27 April the inaugural MPA High Performance Business summit took place at Doltone House, Sydney.

Industry attendees had access to a line-up of Australia’s award-winning brokers and brokerages as well as a motivational presentation by Australian explorers Cas and Jonesy.

30

PEOPLE HOT SEAT

DAVID RAY Director of Elite Finance Professionals David Ray, on saving his client almost $400,000, and why he would trade Bondi for Noosa Who or what inspired you to become a mortgage broker?

My interest in mortgage broking was inspired by my desire to want to help people A through the often-stressful process of buying a home.

I started my career as a mortgage broker after I completed my Diploma of Finance and Mortgage Broking Management. Prior to that, I spent 12 years working in sales and relationship management within top-tier funds management firms.

Despite learning a great deal in funds management, my true passion was to do something rewarding and engage more closely with people, whilst adding significant personal value to their lives.

Mortgage broking is without a doubt the perfect fit.

Q

What is your most memorable client experience?

Unsurprisingly, my most memorable client experience to A date was when I assisted an individual who came to me last year worried that he was paying too much interest.

I refinanced three of his loans and reduced his interest by $39,000 per annum, which amounted to a staggering $390,000 over 10 years.

He has recently used the extra funds to purchase a commercial property for his business, which means he no longer has to spend $60,000 every year on office rent.

This financial gain also allowed him to take his family on a long-overdue holiday.

Q

What will be the biggest opportunities for brokers in 2016?

Due to the ongoing changes regarding credit policy, A interest rates and capital requirements, the greatest opportunity for brokers is to assist clients in attaining the most suitable loan with the most appropriate bank.

More specifically, the importance of quality service and accurate advice has been heightened due to the variability within the banks. This is where brokers can really step up and help clients make the right choices.

Q

If you were to live anywhere other than Sydney, where would it be and why?

Without even having to think about this question, my A answer is Noosa, Queensland. I have spent quite a bit of time there since meeting my wife seven years ago, who grew up by the beach in Noosa.

From my experience, I believe it represents everything I love about life – work-life balance, healthy living, beautiful beaches, tropical weather, and that relaxing, down-to-earth Queensland vibe.

Q

If you could go back and give your 15-year-old self advice, what would it be?

Given my core entrepreneurial drive and competitive spirit, I would have to say A that remaining patient and remembering to enjoy the journey, not just the destination, would be the best advice I could give myself at any age.

It is so easy to get lost in the importance of achievement; however, the most valuable asset in life is the health and wellbeing of yourself and those you love.

At the end of the day, I believe maintaining work-life balance is key to overall success in both personal and professional life. I hope that one day my business is a testament to these values.

Q