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ISSUE 9.14 July 2012
Sony Bank faces tough sell without brokers Foreign banks have welcomed competition from Japan’s Sony Bank, but their new rival may find onlineonly mortgages a difficult proposition
Citibank’s head of broker distribution Aaron Milburn can see the importance of online mortgages increasing over time, as the Australian market undergoes a demographic shift. “The Australian consumer is naturally migrating to differing ways of interaction with their bank,” Milburn told Australian Broker. “Online will become a far more important medium than it is even at today’s level, and the generational shift will demand this channel of doing business, so banks will have to adapt to capture a share of this volume”. Recently, Japanese institution Sony Bank signalled its intention to launch in Australia, with a direct-only banking model that would include online bank accounts and online mortgages. The challenger appears to be banking on this very online shift, and its successful experience in Japan. While online mortgages have long been discussed, researched and even launched in Australia – most recently NAB’s UBank Home Loan – success has at times been elusive. So while international competitors ING Direct and
Cold trail Broker heads to court to pursue trail deposit refund Page 2
Made in Japan Sony Bank ‘not a threat’ to brokers Page 4
Data wars War of words erupts over new property index Page 6 Aaron Milburn
Citibank both welcomed the competition benefits for consumers Sony Bank might bring, the bank may do it tough without brokers. “Having our own direct distribution channel – a hybrid phone and digital experience – has provided us with key insights into consumer preferences,” ING Direct head of delivery Lisa Claes said. “Some of our more sophisticated and digital-savvy customers prefer this channel, however, the majority of our customers largely value the opportunity for face-toface interaction. This customer preference aligns with and supports the broker channel.”
A strong consumer brand – like Virgin Money, for example – was no guarantee of success Claes said. “Banking, especially mortgages, is an industry infused with a degree of complexity from both a product and value chain perspective,” Claes said. However, Milburn said “there is always room” for competition. “You can look to Citi as an example of that innovation bringing the first ever line of credit into the Australian market. International banks will continue to look to Australia to further their brand coverage as it is such a buoyant market compared to most globally.”
Inside this issue Viewpoint 19 Planning for commissions Forum 20 Older borrower declines Toolkit 22 Property and SMSFs Insight 24 Getting strategy right Market talk 26 Understanding Gen Y People 28 Bankwest gets commercial Caught on camera 29 FBAA’s inaugural conference
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News “All we want is our money back” Mission Home Loans broker Tony Ottavio has been forced to go to court in pursuit of a deposit paid to controversial trail book brokerage Buy A Trail, directed by Mark Whittingham. Speaking with Australian Broker, Ottavio said in July he had filed a statement of claim in Kogarah Local Court in Sydney in an attempt to recover a $27,800 deposit paid to Buy A Trail in February this year. The deposit was paid on the assumption that a trail book would be supplied by Buy A Trail. A refund deed was also signed that promised the deposit would be refunded if the sale did not proceed. Ottavio said that months and “thousands” of phone calls, promises and emails later, the deposit still remained with
Whittingham, after being originally paid into his personal bank account. Ottavio said Buy A Trail originally arranged a meeting for Ottavio to buy a trail book from a broker who had previously had his accreditation cancelled by Choice Home Loans. Subsequent meetings promised by director Mark Whittingham with other vendors failed to eventuate, he said. “The day after we transferred that money, we happened to Google him up out of curiosity, and we saw the articles that Australian Broker had written,” Ottavio said. Australian Broker previously published a series of articles documenting complaints against Home Loan Selection Services operating as Buy a Trail, and its
director Mark Whittingham. The articles were published when a series of mortgage brokers complained of difficulties in obtaining refunds of large deposits paid to Buy A Trail and its director Mark Whittingham. Complaints include claims of not having trail books supplied after the payment of a deposit, and the difficulty or inability of having these deposits refunded. The amounts in dispute have ranged from a few thousand dollars into the tens of thousands. Industry associations and aggregators have issued repeated warnings for mortgage brokers to proceed with caution. Australian Broker has also received repeated complaints during the last 12 months from brokers affected by Buy A Trail.
Provident folds as capital lacking The newly-appointed receivers of Provident Capital will repossess the houses of defaulting borrowers, following the end of a court battle in which Provident fought for its survival. Appointed as administrator of the lender, PPB said in July that it would seek to recover funds for close to 3,500 investors in Provident’s fixed interest debenture fund. “This won’t be a fire sale and we won’t be putting all these properties out on to the market at the same time,” a PPB representative told News Limited. Lender Provident Capital had receivers appointed after legal action by the trustees of its debenture fund, Australian Executor Trustees. AET applied in the Federal Court in mid-June for the appointment of a receiver due to a deficiency in Provident’s net tangible assets. AET feared that the group was
putting investor equity at risk and was on the brink of insolvency, with the Federal Court judge eventually agreeing with AET’s case. Despite the appointment of PPB, Provident Capital still maintained that it had the available net tangible assets to meet its obligations to investors and brokers. When contacted by Australian Broker prior to the final ruling, Provident Capital remained defiant. “We have understood Australian Executor Trustees’ principal concern was the potentially unequal treatment of debenture holders that may result if there is,
in fact, a deficiency of net tangible assets,” a statement from Provident Capital issued to Australian Broker read. “While we have been of the firm belief that we would be able to meet all of our obligations to debenture holders as and when they fall due, and have provided AET with a comprehensive and considered proposal to protect debenture holders’ interests, AET continued to press for the appointment of a receiver.” Provident Capital had raised $131m from 5,270 debentures, and had loaned the majority to risky property developers, some of whom have failed to pay interest.
Provident...according to Oxford Dictionary 1. Having or showing foresight; providing carefully for the future. 2. Characterised by or proceeding from foresight 3. Mindful in making provision 4. Economical; frugal; thrifty
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Sony Bank ‘not a threat’ A third of Aussies to Australian brokers clueless over rates Experts believe Japan’s Sony Bank is unlikely to pose a threat to mortgage brokers, following last week’s announcement of its plans to launch in Australia. Sony Bank is an online business which, in theory, cuts out the need for brokers with its direct-tolender approach. Speaking to Australian Broker, SAKS Consulting’s principal, Steve Patterson, was sceptical of its impact on intermediaries. “If brokers do their jobs properly, and are there to help people through the biggest financial decision of their lives, there will always be a need for them,” he said. “It’s a complicated process, and most people welcome someone on the other side of the kitchen table to
Made in Japan: A Sony Bank bio • Sony Bank is a division of the Sony Group, launched in Japan in 2001 • It was one of the first online-only banks in Japan, with no ATMs or bricks-and-mortar branches • An online brokerage service was launched in 2007 • Sony Bank plans to use deposits raised in Japan to fund its Australian mortgage lending
explain everything.” Patterson believes the Big Four have too much of a stronghold on the market to be sidelined by a foreign bank. “Firstly, new and foreign entrants to the market traditionally haven’t done well. This is largely due to the strength, distribution and reach of the Big Four. ING Direct has been on the market for a while now, and is very aggressive, but still cannot compete with the majors. “A lot have come and go with big plans – none have gone that far. I would suspect the Big Four have 85% to 90% of the market. They [Sony Bank] have a hard road to walk,” he said. He warned online banks would be more of a threat in the future, as a younger generation – already adept at technology – embrace online lending. “We may see more and more people seeking online means. However, that’s still a way away. There’s still the overriding issue of hand holding. There’s nothing brokers need to worry about at the moment,” he said. If approved, Sony Bank will be the first Japanese bank to target private mortgages in Australia. The Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Financial Group and the Mizuho Financial Group already provide corporate loans to Australian businesses.
An Aussie-backed survey has revealed a third of Australians don’t know their own interest rates. The survey, conducted by Nine Rewards, asked the question: ‘How precisely do you know the interest rate you are paying on your mortgage?’ According to the data, 32.8% of homeowners and 29.5% of investors were unable to even guess the percentage. The results have CEO John Symond very concerned. “This statistic is really worrying… people need to be constantly questioning their rate. It could be just by speaking to their broker about a simple mortgage health check to see how much they could save,” he said. Of those who did know their rates, almost a quarter were paying “too much” according to the survey, with 23.5% of homeowners and 23.2% of property investors paying more than 7.0% – the band that included the Big Four (at 7.01–7.04%) in April, when the survey was done. “Those who have had less than half a per cent rate cut on their variable rate since November or pay more than 6.5% are simply out of market,” he said. Broker Justin Doobov from Intelligent Finance believes this lack of knowledge stems from an oversaturated market. “I think consumers are now getting bombarded with so much advertising about rates and lenders that it is confusing them, therefore they just tune out. This
The proportion of mortgage holders who don’t know their interest rate
32.8%
*
Source: Aussie Home Loans
is similar to how confusing it is for consumers when it comes to mobile phone plan advertising,” he told Australian Broker. Constant fluctuations in rates were also a key factor. “It is harder for consumers to do their own research as [it’s] normally out of date the next week, as each lender tweaks their offering,” he said. Want to know what brokers thought about this survey? Turn to our Forum on page 20!
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MFAA expands horizons with Singapore offer The MFAA has extended an offer of help to its Singaporean equivalent association, as the nation strives to grow its local broking industry. CEO Phil Naylor offered MFAA’s full assistance to the Mortgage Finance Association (Singapore) in setting up broker networks at a recent conference in the city state. “At the moment, in particular, MFAS is looking to enhance its education standards in a similar way to Australia. We’ve shared with them our experience in this regard,” he told Australian Broker. “The Australian mortgage
finance industry is more advanced than it is in other countries across Asia. I outlined to the audience the substantial growth we have experienced here, which has seen mortgage brokers lifting dramatically their share of the home lending market from 25% 10 years ago to 42 % today. “Mortgage brokers are now a vital channel for home loans in Australia,” he said. Naylor told the Singaporean audience that brokers in Australia were poised to dominate even more of the market in 2012. “[They will] become a more
trusted source of advice, which is the key to growth in markets like Singapore,” he said. MFAS affiliated itself with MFAA in 2005; however, the relationship appears to have strengthened significantly this year. Naylor attributes this to recent growth in the Singaporean housing market, as well as similarities between Singapore and Australia. “The key similarity is that there is a strong housing market in both countries. While broking is now well established in Australia, it is
still in a more fledgling state in Singapore, perhaps similar to Australia about 15 years ago. “However, the opportunities for development of the sector in Singapore are as attractive as they were 15 years ago in Australia. “We are pleased that MFAS has sought our advice in assisting it to build the broking sector,” he said. In a tit-for-tat approach to its own clients, Naylor has advised that there will be opportunities for Australian brokers to break into Asia.
Housing data sparks broker, industry confusion RP Data-Rismark has hit back at criticisms over the accuracy of its Home Value Index June data. The June report sparked furious debate in the industry with its findings of a 1% increase in value across all capital cities. Some industry figures were surprised there was any growth at all, in what has been a difficult period for the housing market. SQM released a statement questioning RP Data-Rismark’s methodology, particularly the data showing a 1% increase in value of Melbourne properties. “Their daily hedonic index, for which these claims are based on, is an unreliable index as it is based on a miniscule proportion of actual sales that happen on a daily basis. Effectively on a day-to-day basis, the index misses out on over 95% of sales,” said managing director Louis Christopher.
“I do not believe for a moment that house prices are now rising in Sydney or Melbourne as RP Data Rismark has claimed.” He warned the alleged ‘inaccurate’ data was damaging for policy-making. RP Data-Rismark’s research director Tim Lawless and CEO Ben Silbeck were quick to discount the allegations. “This claim is wrong. Markets do not follow a straight point-topoint trajectory in any direction. They do, however, demonstrate natural volatility and seasonality as they traverse their path,” Silbeck said. “Prior to the daily RP DataRismark index, these daily market movements were not observable in the Australian residential property market,” he added. RP Data-Rismark reiterated the importance of its data for key
industry bodies, including the Reserve Bank of Australia. “We would presume these groups use our measure of housing market conditions because they are the timeliest and most accurate measures available,” he said. Hobart emerged as Australia’s best-performing capital in the data. Speaking with Australian Broker Online, Tassie Home Loan’s managing director Robert Brand was sceptical of the results. “I don’t think this reflects what is actually happening down here. They’re being ultra-conservative and pushing prices down. The median price moves up, which isn’t an indicator of real value… just lack of activity in the south. No one is seeing any increase.” Chris Groves, of Hobart-based Financial Advisory Service agreed. “This definitely surprises me. The growth here has been very
slow. Prices have dropped considerably, and not much is selling at all. I’ve been in this business for 21 years, so I know most of the brokers in Tasmania, and we’re all experiencing the same thing.”
What the report found: • An overall 1% increase in property values across capital cities in June • Best performing city was Hobart, at 2.7% • Worst performing city was Adelaide, at -1.1% • Melbourne rebounded from a weak May period with a 1.7% recovery rate • Despite June growth, outlook is bleak with an overall 1.2% overall dip for 2012
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News Over half of Aussies admit to ‘bank rage’ A new survey claims over half of Australians have experienced a case of “bank rage”, defined as anger or significant frustration towards their financial institution. A survey commissioned by Heritage Bank found that 53% of respondents have suffered from bank rage in the past, which would equate to around 9.1 million Australians. The survey claims twice as many Big Four bank customers –
What you said: From the Forum 59% of my customers have expressed ‘bank rage’ with Heritage Bank! Brent on 02 Jul 2012 12:51 PM I wonder how many brokers have experienced ‘bank rage’? Now that would surely be 100%! Broker on 03 Jul 2012 12:39 PM
or 59% – have felt anger and frustration, compared to 31% of mutual bank, credit union or building society customers. The survey, conducted by Colmar Brunton research, asked 1,000 Australians which types of companies they felt the most frustration towards. Nearly one in five people said they feel more frustration towards their financial institution than other organisations they deal with, while two in five have already switched institutions because of a very negative experience or incidence. The only types of organisations that generated more frustration among Australians were telecommunications companies, and the government. Heritage chief executive John Minz said that people who were now frustrated with their big bank now had the perfect opportunity to make the switch to a more satisfying banking experience.
The companies that enraged Australians 1 Telecommunications companies 2 Government 3 Banks 4 Energy companies 5 Retailers 6 Political parties 7 Airlines 8 Supermarkets 9 Insurance companies 10 Health services Source: Heritage Bank
“Our research indicates that there is a groundswell of anger and frustration out there about the excesses of the big banks, directed at things like massive profits, unfair fees and the overall quality of service. “But you don’t have to be trapped by the big banks and keep suffering bank rage,” he said.
The findings of the Heritage Bank survey came in tandem with Federal Government reforms which are set to make changing bank accounts easier, by making banks responsible for moving direct debits.
He’s back: Paul Gollan launches new brokerage Paul Gollan, former CEO of Australian Mortgage Brokers, has made a return to the mortgage market following his departure months ago with the launch of a new high-end broker firm. The firm, called BrokerLoans, will be both a brokerage and high-end consultancy, it was announced in July. Gollan is teaming up with aggregator AFG on the project. Speaking with Australian Broker, Gollan said he was responding to a market need for quality, customer serviced-focused brokerages. “Lately, mortgage broking has become a number-crunching game. It’s become far too transactional. What we’re aiming to do is focus
on quality service, expert advice and become the specialist in the industry,” he said. “At the moment there are too many broker groups out there. Quality is slipping as commissions are cut and people want to make enough money.” Gollan is also keen for the business to be a family affair. In this new venture his wife, CarlieDenise Gollan, will be largely responsible for driving the customer service policy. “It’s a different model to a lot of businesses out there. While I started Australian Mortgage Brokers with a group of shareholders, this will be a family-owned business. “We’re aiming for an exceptional
level of service, expertise and interaction.” Speaking of specialists, Gollan believes mastering a specific area is key to survival. BrokerLoans will eventually be a collective of experts. “There is a notion that you’ve got to diversify to survive. That’s great, but I think becoming a specialist and trusted advisor is more important,” he said. Gollan is in the final stages of negotiation with a “major real estate group” which will become its first major consultancy client. “I only want to work with people who are dedicated, know the value of hard work and are experts in their field.” Gollan left Australian Mortgage
Paul Gollan
Brokers in April this year after setting up the firm 12 years ago. Many industry figures had been eagerly awaiting his next move.
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Brokers a crucial link to clients’ lost super
NRAS gains more lending supporters
A major lender has said mortgage brokers could be critical in assisting clients to reconnect with $17.4bn worth of lost superannuation. In July, Westpac released its Lost Super Report, which found that 61.8% of Australians aged under 40 have lost super, and that the majority of those affected were not actively looking for it. The problem is being accentuated by a rise in job mobility – particularly among those aged under 40 – with 42% of respondents saying they had had four or more employers over 10 years. Speaking with Australian Broker, Westpac head of mortgage broker distribution Tony MacRae said mortgage brokers could play a role in assisting their clients to reunite with their super. “When you look at the $17.4bn in lost super, that is a lot of money, and when you think that brokers now have about 45% of the lending market, a big chunk of that $17.4bn would be from broker customers.” MacRae said the bank was focused on raising awareness of the issue among brokers, aggregators, their customers and their staff, and extended the invitation for all these parties to visit a Westpac branch which could help them track down the
The National Rental Affordability Scheme (NRAS) is gaining serious traction with lenders, after a spate of product launches pushed the opportunity to front of mind for brokers. Australian First Mortgage and Nationalcorp Home Loans are the latest organisations to launch NRAS products, following on from Iden Group and National Finance Group. Both institutions are now accepting applicants with an LVR of up to 90%, although loans will not be available for low-doc applications. Nationalcorp said any of its accredited brokers could apply. Organisation of the contract and purchase would be through its property division, Capital Property Acquisitions, with the broker writing the loan. Adelaide Bank was revealed as the fund’s provider. Barry Parker, managing director of Nationalcorp, told Australian Broker the recent flurry
lost super funds. Brokers could highlight and promote the issue when they are interviewing clients, he said. Tony MacRae “In the customer interview, as they are going through gathering information for a home loan, it’s a good question to ask where their super is, and have they changed jobs regularly in the last five to 10 years,” he said. Just over 40% of those aged between 40 and 59 years were found to have lost super, reducing to 21% when an individual was aged over 60. Australia has $17.4bn worth of lost super in total. “These statistics point to a lack of understanding about lost super amongst younger Australians and demonstrate an opportunity to try to educate them in a more compelling way,” said Westpac group head of super Melanie Evans. “In general, there is a lack of engagement around retirement planning across all generations, with the majority of people surveyed seriously underestimating how much super they will require in order to live comfortably when they stop working,” she said.
of interest could be attributed to looser title restrictions. “I think that the real value proposition of NRAS has finally been recognised by lenders. Initially, leases registered on titles made NRAS unfavourable, but recent changes by some NRAS facilitators – not requiring the lease to be registered on title – have opened the door, so to speak,” he said. He added the projected 50,000 homes “up for grabs” in the coming years would be attractive to brokers increasingly eager for new commercial clients. He said the scheme would also benefit those investors “tired of having negative cash flow.” “There is now some market experience with about 8,000 commitments, and all is good. “As an investment, NRAS makes sense as you get quality tenants, plus over $110,000 from the government to make owning an NRAS investment home cash flow neutral,” he said.
NRAS: Why it’s a good option for clients • Successful applicants receive up to $110,000 in government assistance. • The low to mid-income bracket is increasing in size, meaning ample opportunity for your investors or private borrowers. • Recent changes to lease title restrictions have made it easier to apply for NRAS. • You’ll be doing your bit for the welfare of Aussies (a key reason, of course).
Where would you rather live?
Forget space, good weather, beaches and low pollution: Sydney has sunk from second to fifth place in the Economist Intelligence Unit’s city liveability rankings, with Hong Kong now being top dog. Hong Kong was shown to have
the best balance of compact urban living with cultural heritage sites. Its victory is a sign values are changing. Once the epitome of wealth and lifestyle, large suburban dwellings are, apparently, undesirable both for homeowners and rankers of cities.
Professor Weirick, UNSW’s director of urban development and design, told the Sydney Morning Herald the “policy of facilitating growth on the periphery is seriously mistaken. Sydney will only get better with higher density in the right places.”
University of Sydney’s Nicole Gurran also told the SMH the suburbs were to blame. “In the old days, we used to value empty and quiet suburban streets. Now, some of the Asian cities do better on new measures such as active street life and connectivity. These are things Sydney could do better,” she said. Hong Kong is known for its exceptionally ‘resourceful’ approach to housing a heaving population on a small island. Australian Broker’s own Ben Abbott had the pleasure of living in the dense city for two years. “I couldn’t believe how many people there were. I was living in a huge apartment block with very little space. Some days you could even see the pollution in the air. Not good,” he said. It could be worse. Dhaka, Lagos and Harare were named the worst cities in the world to live in.
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News ING Direct launches LVR-based pricing A national mortgage lender began offering sharper pricing for sub-80% LVRs in mid-June. ING Direct announced it had launched LVR-based interest rates for its Orange Advantage and SmartPack Mortgage Simplifier products in order to
reward customers with lower LVRs. From 9 July, customers with less than 80% LVR who were borrowing more than $500,000 have been eligible for a reduced interest rate of 5.88% Head of broker distribution
Rates correct as at 9 June 2012
Mark Woolnough said the price adjustments would encourage more sub-80% LVR business, making it more popular with investors and upgraders. “Whilst we’ve made various improvements to our service proposition this year, we haven’t overlooked the importance of sharply priced, competitive products,” Woolnough said. ING Direct has also reduced the lending threshold under Orange Advantage and SmartPack from $300,000 to $250,000 which the bank said will likely appeal to a wider market. The bank said based on feedback, it had also aligned the Orange Advantage and SmartPack Mortgage Simplifier price points for loan amounts above $250,000 with LVRs below 80%, which are now both 5.88%. Lisa Claes, head of delivery at ING Direct, said the bank’s mortgage products had been
NMB hits settlement record
Refinancing soars while fixed rates dive
A national broking group hit a record in loan settlements last financial year, and is gearing up for an even bigger 2012/13 according to its managing director. National Mortgage Brokers, recently acquired by Aussie Home Loans, hit a record in loan settlements at $2.2bn up from $2.05bn last year, with book growth at nearly 10% to $8.5bn. Managing director Gerald Foley said that many of its brokers had experienced their personal best months or year during the 12-month period, helping boost NMB’s fortunes. “Recently talking to a number of our ‘PB’ brokers, it is clear their current activity levels are off the back of doing many things right within their business, over a sustained period of time,” Foley said. He said the future was equally bright for the business and
Statistics are pointing to a major increase in refinancing, coupled with a dip in fixed rate loans, as borrowers become savvier about securing better deals. The AFG Mortgage Index’s June results showed a whopping 39.1% of borrowers chose to refinance their homes. This makes it both the largest segment in the survey, and the highest number since June 2011. Mark Hewitt, general manager of sales and operations at AFG attributed the growth to a more competitive market. “Refinancing is very strong as borrowers take advantage of the market to secure a better deal. It’s significant that, as we begin a new financial year, the vast majority of borrowers are opting not to lock in an interest rate,” he said. AFG’s data was backed up by RP Data-Rismark’s Home Value June report, which found Australian homeowners are increasingly cautious. Conversely, fixed rate loans fell to 16.5% – a significant decrease from March’s peak of 25.4%. First home buying also weakened. According to Loan Market’s research, the popularity of fixed rate loans has taken a dive since the RBA announced an unchanged July cash rate.
ING Direct’s new LVR-based rate table Interest rate
Comparison rate
Aggregate borrowings <$250k
6.34% pa
6.52% pa
Aggregate borrowings $250k+
6.16% pa
6.34% p.a.
ORANGE ADVANTAGE
LVR BASED INTEREST RATES where LVR is ≤ 80% Aggregate borrowings $250k to <$500k
5.98% pa
6.16% pa
Aggregate borrowings $500k+
5.88% pa
6.06% pa
SMARTPACK MORTGAGE SIMPLIFIER *
Interest rate
Comparison rate
Aggregate borrowings $250k+
6.16% pa
6.20% pa
LVR BASED INTEREST RATES where LVR is ≤ 80% Aggregate borrowings $250k to <$500k
5.98% pa
6.02% pa
Aggregate borrowings $500k+
5.88% pa
5.92% pa
for mortgage brokers, with market conditions playing into the broking proposition. “I feel that in recent times the banks, whilst continuing to dominate share, are becoming less favoured as a direct source of financial advice and assistance,” he said. “Customers are now seeing a greater divergence in pricing, lending policies and service. This feeds right into the broker proposition.” Foley said Aussie would soon complete its acquisition of NMB, and that he expected this would create opportunities for NMB to continue to grow through tapping Aussie’s resources. “I predict for brokers in the year ahead there will be an increased need to broaden the range of financial products and services you can assist your clients with,” he said.
A good way to end the financial year Aussie has claimed its biggest day of settlements ever, on the last day of the financial year. The brokerage increased settlements by 42.8% compared with June 30 last year, and grew by 10.27% compared with the previous biggest settlement day back in March 2010. “I think it’s our best result ever, but we can only claim it as far back as our current computerised records, without digging through paper-based archives,” says executive director James Symond. He said it was due to a ‘Smart to Ask’ campaign, and successful recruitment.
consistently competitive in terms of pricing and simplicity over a long period of time. Mark She said the LVR-based pricing Woolnough as well as a raft of credit policy enhancements that have been undertaken over recent months would ensure the bank remained competitive. The credit policy changes included changes to the credit assessment process, income criteria and verification, simpler treatment of allowances for depreciation add-backs and a loosening of criteria relating to smaller properties. Claes said ING Direct was also putting in place a team of risk-based assessors, that would ensure the credit team is not implementing an overly conservative judgment on rejected applications.
The brokerage claims enquiries over fixed rate loans dropped by 15% after the announcement. It was as high as 30% in April/May. A company spokesperson said consumers were expecting rates would fall again, mirroring sentiment felt by many in the industry. “The feedback from consumers shunning fixed rates is that they’re convinced home loan rates have further to drop and that they’re anticipating a period of prolonged low interest rates,” said the spokesperson. The AFG Mortgage Index: June findings • Two in five mortgages (or 39.1%) were refinancing • The average mortgage size rose 2.3% over the year, from $384k to $393k • Only 16.5% opted for a fixed rate mortgage in June, compared with 25.4% in March • The proportion of first homebuyers rose from 13% to 15.6% Loan Market: July findings • Fixed rate enquiries dropped by 15% in the first week of July • The lowest fixed and variable rate product was 5.79%
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INVESTOR NEWS
Costs add up and keep house prices high House prices may be at ‘absurd levels’ according to one observer, so what is it – aside from rates – that are keeping them afloat in these uncertain times? According to Peddle Thorp design director and architect Peter Brook, the simple truth is that housing prices will remain high unless infrastructure demands lessen. Governments at all levels are placing demands on developers for infrastructure, such as electricity substations, roads, and drains – and then imposing huge rates and charges as well, he claims, and this is pushing up the cost of housing stock. “Lowering of interest rates was only one part of the equation for returning housing prices to some form of sanity,” he said. “People have concentrated on interest rates, yet the impact of rate decreases pales into insignificance compared to the regulatory demands placed on developers.” The problem, said Brook, is that these costs have increased greatly over time – and have to be passed onto the property buying public in the end. “Developers are increasingly being asked to pay for basic infrastructure to get a building even started,” he said. “With planning regulation and costs centred around vague concepts such as neighbourhood character, we find costs escalating and there seems to be no end to this insanity.”
What you said: From the Forum This is accurate. Going through the process right now (with other property owners) and the items Council is requesting owners to pay, borders on the ridiculous. MMS from Perth on 09 Jul 2012 10:40 AM Everyone screams if governments increase debt. So for now it's user pays as budgets are already in the red. Developers want the costs made 'public' but the profits private (i.e. theirs). Everything costs money so users and those who profit should pay. Incognito on 09 Jul 2012 01:29 PM It has never been the developer who has created these cost blow-outs. The developer understands he needs to build at a low cost to move the property on in a timely manner. This issue sits right in the lap of the greedy councils. Too much red tape, too many absurd "infrastructure" costs make properties very expensive. Garry on 09 Jul 2012 02:20 PM
Danger: When good apartments go bad If your clients think they’ve found the perfect apartment investment, they should read this first. Sometimes behind the scenes shenanigans can scupper their investment dreams. In short, if their building isn’t properly managed, then the value of their investment can be quickly eroded. So what can they do to avoid this catastrophe? First up, it goes without saying that any investor worth their salt will obtain a strata report before buying. This will note: • the performance of the owners corporation • the condition of the building • any major upcoming expenses (such as lift or cooling tower repairs) • and the ability of the building’s sinking fund reserves to cover such repairs or replacements.
As Daniel Brown, senior building manager with Waterpoint Asset Management explains, a well-maintained and professionally managed property will present itself favourably to valuers and buyers when compared to poorer managed buildings – and stands the best chance of appreciating in value. Ultimately, the test of whether a building is well managed or not is reflected in the resale prices of individual apartments, he says. According to WAM, long gone are the days of unqualified ‘caretaker-cleaners’ living on the premises and doing odd jobs: As strata legislation became more complicated and environmental demands increased, so did the need for expert guidance on occupational health and safety regulations, security, financial, accounting, insurance and legal issues. Consequently, professional building managers are now the norm. “It is not uncommon for the total asset of a large strata development to be worth hundreds of millions of dollars, and it’s our job to ensure everything operates efficiently and looks its best at all times,” said Brown. “A professionally managed building contributes greatly towards a harmonious community and the asset value of the property.”
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ASIC bucks RAMS for More cuts needed in a ‘misleading’ advertising hurry, say experts RAMS is the latest casualty of ASIC’s hard-line stance on misleading advertising. The lender, a subsidiary of Westpac, was forced to change its Saver account campaign after ASIC raised concerns over misleading information on the advertised bonus rate. The advertisement headline featured the 5.75% interest rate, with a smaller statement offering a 0.8% bonus rate with terms and conditions applying. The ad appeared on television, online and outdoor advertising. According to ASIC, the campaign failed to adequately explain that the bonus was only available if no withdrawals were made for an entire month. It’s the latest in a line of institutions scolded by ASIC for ‘misleading’ or inaccurate advertising statements. Last month, Resi was forced to
ASIC’s main concerns • Advertisements should give ‘balanced information to ensure the overall effect creates realistic expectations’ • Terms and conditions should be highlighted prominently • Advertisers have a responsibility to provide consumers with all relevant information
change its home loan advertising campaign after it was found to inadequately disclose its comparison rates. Westpac and CBA were chastised earlier this year for soliciting credit limit increases from customers in a misleading way, while BankWest fell afoul with its advertisement for the ‘nation’s cheapest credit card’. The spate of reprimands followed the release of ASIC’s Regulatory Guide 234 Advertising financial products and advice services: Good practice guidance. ASIC Commissioner Peter Kell was adamant swift action would be taken against non-compliance. “ASIC’s guidance will help industry participants understand their obligations but we are also sending a message that we will take action in response to misleading ads.”
Speculation is rising that interest rates will be significantly cut towards the end of 2012, after a brief ‘breather’ over winter. While the RBA left rates unchanged at 3.5% in July, the impact of the carbon tax, decreased confidence and a fragile housing market are likely to weigh heavily in future months. Leading Australian broker Moshe Moses confirms the current ‘wait-and-see’ approach by the RBA will be short-lived. Speaking to Australian Broker, he identified the carbon tax and unfolding European crisis as playing major roles in the future. “[The unchanged rate] was largely expected, only because there is no movement in the market at the moment. “We’re waiting to see what the carbon tax will do. There is [also] a lot of uncertainty overseas, which is having a big impact. There is a real expectation it will come down,” he said. Moshe also predicted significant movement in longterm fixed rates, which are already being slashed. “Citibank announced a cut to its long-term fixed rates, so this is where there will be movement and change in the near future,” he said. Loan Market’s Paul Smith also mentioned the carbon tax as a key factor in future developments. “The impact of the carbon tax is
another great unknown, particularly how it will affect consumer behaviour in the months ahead,” Moshe Moses he said. Other commentators expressed concern over the flat rate causing stagnation in an already fragile market. “Given the large multiplier impact of new home building across manufacturing, retail and other key sectors, that situation portends further weakness in the domestic economy and the Reserve Bank needs to be prepared to lower interest rates further,” said Housing Industry Association’s chief economist Harley Dale. “Further government investment and reform is also required to lift new home building activity from what are historically very low levels in 2012,” he said. This was backed by Smith, whose own surveys suggested the previous two months of cuts had not yielded enough results to warrant a flat rate. “[They] have shown strong support for further rate reductions as some consumers did not believe the previous cuts had made much difference to them – especially as they haven’t been passed on in full by most lenders,” he said.
Takeover strengthens Pepper’s commercial arm Pepper Australia Group has acquired property advisory service Grant Samuel Property in a bid to strengthen its commercial offering. Pepper announced its acquisition of all of Grant Samuel Property’s share capital, and renamed it Pepper Property Group Pty Limited in early July. “This is a highly strategic acquisition for Pepper, and heralds our formal entry into the commercial real estate sector,” said Pepper’s CEO Patrick Tuttle. “[They] are the leading independent property advisors to
the Australian corporate real estate market, so we’re delighted with their decision to join the Pepper Group,” he said. Pepper chairman Mike Culhane also confirmed the move was a very strategic one. “This acquisition further extends Pepper’s long-held strategy to build a diversified, global financial services business with a core focus on three key disciplines across the residential and commercial property sectors, namely lending, advisory and asset management,” he said.
The merger: what it means • Pepper will use Grant Samuel’s 20 years’ of commercial experience • Grant Samuel, or ‘Pepper Property’ has access to Pepper’s strong footholds in Asia and Europe • Pepper will offer Grant Samuel a better management support system • Both companies will use each other’s network of contacts for leads
“This business provides Pepper with immediate access to the commercial property market arena where we can leverage our capital raising platform, credit, loan servicing and securitisation expertise, to deliver integrated property solutions whilst maintaining a truly independent CRE platform.” Established in 1988, Grant Samuel is an authority in commercial tenant representation, capital raising and divestment advisory services within AsiaPacific. While the takeover benefits Pepper’s commercial business, it will be taking steps to bolster Grant Samuel’s operations. An undisclosed agency will come on board to provide brokerage research and transaction management support for Grant Samuel.
The company’s executive director Greg Smith believes it will help Australian clients in offshore markets, in particular. “[It offers] an independent, best-of-class model that delivers fully integrated global property solutions. Competitors in this space have lost their independence, or never had it, and sophisticated clients still require a level of compliance, adherence to governance and appropriate commercial outcomes,” Smith said. Culhane was quick to reassure investors it was “business as usual” at both companies, despite the integration. “The new Pepper Property represents a very unique, independent offering in the CRE space, with a truly global network to support our clients’ needs,” he said.
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INDUSTRY NEWS IN BRIEF Macquarie campaign includes free upfront valuations Macquarie Bank is offering a first-year variable rate discount across its suite of mortgage products, as well as a limited period of free upfront valuations. The bank announced that its variable rate will be discounted to 5.85% for the first 12 months of all Classic, Premium and Line of Credit loans, for all eligible applications settled on or before 28 September 2012. In addition, the bank said it will offer free upfront valuations until 31 August this year, waiving the usual $50 fee. Macquarie Adviser Services head of broker sales Doug Lee said the offer would provide brokers and clients with choice. “We firmly believe that choice is the key to a healthy market for borrowers, brokers and originators, and this new rate offer is all about choice, providing a compelling and very competitive pricing option,” he said.
Insurance to go direct At a time when brokers are being encouraged to increase their insurance cross-sell, a report suggests the insurance market will soon be dominated by direct sales. The Direct Life Insurance in Australia: Racing Onto the Radar report by Plan For Life and Oliver Wyman consulting found direct insurance has been growing at a significant rate as consumers become more confident with purchasing life insurance products through channels such as the web and smart-phone technology. More than 40% of new life insurance business in Australia is expected to come from direct means by 2021, reaching a sum of more than $2bn. “The reality is that life insurance remains largely sold rather than bought and successful players are using sophisticated marketing techniques to reach their clients,” said Brad Clarke, one of the report’s authors and head of insurance strategy for Oliver Wyman.
Suncorp spruces up broker portal A second tier lender has chosen Friday 13th as the launch date for its newly designed broker portal. Suncorp has said in a broker update that the new portal, Business Partners Online, will offer a range of new features aimed at giving brokers more control and improving their interactions with the bank. These include up-to-date processing time information, simpler navigation, quick links to commonly used pages and the ability to direct communications with the bank to the appropriate area. Suncorp said the new portal will include the Broker Mortgage Manager tool which allows brokers to track the progress of customer loans.
Warning of GFC loan lows While the number of new home loans slipped in May, economists are now warning the second-half of 2012 will see numbers dip to GFC-level lows. The Housing Industry Association (HIA) has released the data in conjunction with findings from the ABS. HIA’s chief economist Harley Dale said it was a “disappointing result.” “It is evident that new home starts will bottom at GFC-equivalent levels this year, which is a very poor outcome for Australian businesses, households, and therefore the wider economy,” he said. There was an overall dip of 2.4% in May, although it did show state-level growth across Queensland, South Australia and Tasmania. Decline was recorded across NSW, Victoria and the Northern Territory, which led the pack at an alarming 23.8% drop. “We needed to be seeing a strong recovery in new home lending coming through in the first half of 2012 to signal a significant turnaround in residential construction from what will historically be a very low trough,” said Dale.
ANZ head hunted for Barclays ANZ chief executive Mike Smith was rumoured to be in the running to replace former Barclays chief Bob Diamond according to reports in July. Diamond and chairman Marcus Agius resigned in the wake of claims the bank had manipulated interest rates during the 2008 financial crisis. Mike Smith is among several top CEOs Barclays is considering to replace Diamond, in a hunt that’s international in scope. An unnamed source told the Wall Street Journal that Barclays had hired global executive search firm Spencer Stuart to find a replacement within three months. ANZ has enjoyed renewed success in Asia recently, as a result of its aggressive expansion in the region. Many believe another sudden departure of its CEO would impact negatively on the bank. Smith’s predecessor, John McFarlane, left ANZ in 2007 to take up the Londonbased post of executive chairman of wealth management firm Aviva.
AFM cuts commercial rates Australian First Mortgage has announced a 0.2% reduction in its commercial variable rate, which it says should encourage businesses to shun renting. Effective immediately, the rate reduction brings a variable loan with an LVR of less than 65% to 7.89%, and a fixed-rate loan to 6.64%. AFM cited relocation costs associated with renting – new signage, IT support, stationery and logistics – as a key reason to buy a commercial property. AFM director Iain Forbes is hoping the reduced rate will encourage businesses to make the switch permanently. “We are determined to pass on every rate reduction to our borrowers,” he said.
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News Rate ‘whisper’ could buoy variable rates further The popularity of variable rate loans is at a nine-month high, while ongoing speculation of cash rate cuts in August could see further surges in the months ahead. The findings were released by Mortgage Choice in its round-up of June data. “Perhaps the whisper of one more rate cut in coming months is wielding influence,” said its spokesperson Belinda Williamson. It’s yet another indication of growing consumer confidence in the RBA cutting rates from August onwards. “The end of the financial year brought with it an air of optimism around the direction of interest rates as a growing number of home loan borrowers, more than one in four, chose variable rates,” said Williamson. Demand for the loan is at 82% overall, with Western Australia
seeing the biggest rise, followed by Queensland, Victoria and NSW. South Australia was the only state to see a drop in popularity, falling to 78% in June. The second most popular loan type for June was a basic variable rate at 19.1%, while a standard variable loan was in third place at 18.6%. “It goes to show there are competitive deals on offer for new borrowers as well as those looking to refinance,” she said. In comparison, fixed rates continued to fall in popularity. Williams believes borrowers are being motivated by the obvious cost gap between fixed and variable rates, and acting accordingly. The current average fixed rate loan is at 6.22%, while the standard variable is at 6.79%. However, it is possible for borrowers to “negotiate a discount
on their standard variable interest rate – to below 6% in some instances,” said Williamson. While many, including Mortgage Choice, are firmly in the variable rate camp, some lenders are showing support for the fixed rate loan. 1300’s John Kolenda said now
was the perfect time to exploit record low fixed rates. “Lenders are clearly pricing in further interest rate cuts due to global economic weakness. As fixed rates are forward-looking, any further reductions in the RBA cash rate may not flow through to fixed rates.”
Major bank customer satisfaction National
Jun-12
May-12
6-month average
12-month average
Variable rate
81.99%
79.31%
78.52%
80.20%
Basic variable
19.06%
17.18%
15.95%
16.22%
Standard variable
18.64%
18.70%
17.33%
17.30%
Ongoing discount
40.31%
40.05%
41.2%
41.71%
Line of credit
3.76%
2.72%
3.33%
3.77%
Introductory rate
0.22%
0.62%
0.62%
1.19%
Fixed rate
18.01%
20.69%
21.48%
19.80%
Big Four customers Decrease in fees good increasingly dissatisfied news for brokers Customer dissatisfaction with the Big Four is on the increase, while alternative banks are winning over customers, according to new research. Roy Morgan’s Customer Satisfaction monthly report for May showed a 0.3% overall dip in satisfaction levels across the major banks, with ANZ and Westpac suffering the lowest results. ANZ’s satisfaction level was the lowest since August 2009 at 74.6%. This was largely attributed to a 2.5% drop in satisfaction amongst home loan customers. Westpac followed closely behind with a 74.6% satisfaction rating, while NAB and CBA enjoyed a modest increase, although not enough to push them ahead of Bank of Melbourne and St.George. Meanwhile, new mutual banks and building societies saw a significant increase in satisfaction levels. Norman Morris, Roy Morgan’s industry communications director, said the culture at alternative banks contributed to happy customers. “It starts with a culture of serving customers. If shareholders are the main concern,
customer service may slip. This is the advantage of building societies. It’s an entirely different ethos. If you’re smaller, it has more of a personal, local touch,” he told Australian Broker. He added that regional areas, where these banks have a stronger share of the market, are perfectly suited to a home-grown, grassroots approach. According to Morris, it’s also a matter of scope. Larger banks suffer the effects of bad publicity due to their headline-grabbing status. “Attention – positive or negative – is very important; the smaller the bank, the smaller the impact of negative press. It’s very tricky for bigger banks to manage all the competing interests of shareholders, customers and staff. It’s a very fine balance. “The big guys always get into trouble when they announce something, through big campaigns or in the media. If it doesn’t work, or gets criticised, the public perception will be influenced negatively,” he said. Morris believes the alternative banks need to capitalise on this shift in customer attitudes by ramping up their offers. “To keep customers happy, you have to give them reasons to bundle more cash with you,” he said.
Upfront and exit fees have decreased significantly over the past 12 months, which is good news for brokers eager to boost business. According to a study by comparison site Rate City, it’s never been easier, or cheaper, for borrowers to switch lenders or apply for a new loan. The study found upfront fees had decreased from $707 to $693, while exit fees – banned by the government last year for variable loans – had dropped by $49. Among the banks dropping fees were Bank MECU, Bank of Queensland, NAB, The Rock Building Society and ECU Australia. “There was speculation that lenders would hike their upfront fees to recoup the potential revenue loss from the exit fee ban. But some lenders have in
fact lowered their upfront fees or dropped them altogether,” said Rate City spokesperson Michelle Hutchison. She said brokers should be taking advantage of the lower fees to attract new customers. “This [rate dip] shows that lenders are working harder to win over new customers by making it more affordable for prospective homebuyers to enter the property market or for existing borrowers to switch,” she said. Commonwealth Bank and Bankwest have recently introduced ‘free-fee’ home loans, while relative newcomers to the market, LJ Hooker and UBank, offer no upfront fees. However, Hutchinson warned that not all lenders were dropping fees, making shopping around crucial. “Not all lenders are competing as hard as some, as we’ve recorded 81 home loans lift their upfront fees since January last year. Upfront fees range from no cost up to about $1,000 which is why it’s so important to compare all the costs,” she said.
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News Low confidence a bad sign for business
Roy Morgan Research’s June Business Confidence Report has found confidence remains low in Australia, presenting another blow for commercial brokers. The survey – conducted among 2,577 businesses across Australia – found confidence levels were at a 10-month low. Weighting heavily were concerns that Australia’s growth would be slow over the next 12 months. As a result, 51% of businesses said they would be reluctant to invest at all. It’s bad news for commercial brokers and even worse news for the Australian economy. Roy Morgan’s communication director Norman Morris believes any negative sentiment – however spurious – will impact badly on recovery in the next 12 months. “It’s simply down to a lack of confidence stopping people investing. If investment stops, things deteriorate. It’s as straightforward as that,” he told Australian Broker. “If you look at the reality of it, mining is booming in Australia.
Yet 51% of businesses are not happy to invest. It’s absurd. It can be a good time to invest if you have the right guidance and advice,” said Morris. Other factors weighing heavily on investors included the ongoing European crisis, the impact of the carbon tax, and RBA’s predicted cuts in interest rates. “The ultimate impact of reductions in interest rates on business will depend on how much of the reduction in official rates is passed on to business and how businesses react to the world economic situation… [it has] the potential to maintain a mood of uncertainty and low confidence,” the report said. The report also revealed the previous two cuts in RBA’s cash rate had failed to boost confidence, and at best had “prevented it from slipping further.” It wasn’t all gloomy news – Western Australia continues to be the fastest-growing state in terms of investment, while ‘positive’ industries included education and training, information, media and telecommunications, and finance and insurance. Roy Morgan says it’s a sign the negative sentiment could be “bottoming out” in June. “Despite the rather negative economic news over the last six months, there are now some tentative signs of improvement recently,” it said.
Housing approvals rise, but dip is expected Housing approval rates soared in May, according to data from the Housing Industry Australia (HIA). “[The] positive building approvals result is welcome news, which comes at a time when many builders, manufacturers and suppliers in the residential building industry continue to face very challenging conditions,” said HIA’s senior economist Andrew Harvey. Building approvals were up by 27.3% in May, with WA and SA rebounding the most after a weak April period. Even the more volatile NSW and Victoria markets had improved. Harvey put this down to recent government incentives, which expired in June. “There is a ‘bring forward’ effect in both Victoria and NSW where buyers have rushed into the housing market to secure state government homebuyer incentives before they ended on June 30,” he said. As for the overall robust result, Harvey believed the cash rate cuts over April and May were to thank. “[It] delivers preliminary evidence that recent interest rate cuts may be starting to have an impact,” he said. However, he warned that activity was still troublingly low within the core segment of detached housing. Multi-unit approvals were up by 58.3%
compared to a modest 9% growth in detached housing. He also expressed concern over general decline in activity within the market, in spite of positive figures for May. “We need to keep in mind that the result comes off a very low base in April and is driven by the highly volatile multi-unit part of the market. The level of approvals in the core segment of detached housing remains well below the levels recorded one year ago,” he said. Meanwhile, economists are now speculating whether RBA’s unchanged rate will see these numbers plateau in coming months. “One can only hope this is not taken for granted by the Reserve Bank. It would be a great disappointment to see the recent improvement in buyer sentiment was not shown to be sustained,” said Ray White Group’s Brian White.
Discounts a ‘sign of light’ for mortgage industry Recent discounts on standard variable rates are finally leading to profitability for banks, according to an RBS report. The report, released in July, shows ANZ, CBA and NAB’s lowering of mortgage discounts in the last six months has yielded a return on equity of 20–30%. Most lenders are offering reduced discounts on advertised standard variable rates to those seeking bigger loans.
In September last year, ANZ and CBA offered 0.90 percentage points off their standard variable rate, while NAB offered a 0.75 percentage point reduction. The report found most banks are now offering a reduced level of discount to boost profitability, at an average of 0.7% across their variable loan offerings. It’s a “sign of light” for the mortgage industry, and shows banks “clawing back margins on
loans lost to higher funding costs,” said RBS analyst Andrew Lyons. “Mortgage profitability has been progressively increasing, characterised by out-of-cycle rate rises and a reduction in front book discounts,” he said. The profitability was contributed to by most banks’ refusal to pass on all of the RBA interest rate cuts this year. Reserve Bank deputy governor Philip Lowe recently said that due to an erosion of trust in the financial sector globally, society as a whole was not effectively choosing to pay more for financial intermediation – but as well, were choosing to have less of it. He said this has a number of implications for bank equity. “In particular, loan rates are likely to be higher relative to short-term money market rates
than would otherwise have been the case; in effect, some of the incidence of the higher cost of financial intermediation falls on the borrowers,” he said. “In addition, if banks are safer, then, all else constant, some of the incidence of the high cost of financial intermediation should also fall on the owners of bank equity who should be willing to accept lower returns.” Lower returns on equity are likely to increase the incentive for bank management to take on new risks in an attempt to regain earlier rates of return. Lowe said lower rates of return may also lead to renewed efforts at cost cutting. “This could have some positive effects, but if it were to involve cuts to the riskmanagement function, cost cutting could create new risks,” he said.
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VIEWPOINT
Commissions may soon be on the way up, and if you are serious about your business, you’d better be factoring commission into where you send your clients, say brokers
Two years and counting for NRAS profit
James Green, Oxygen Home Loans
Don’t baulk at commission margin “If you can find a very competitive and compelling offering for your borrowers and increase your margin at the same time you should be doing it – end of story.” That’s the view of Oxygen Home Loans’ James Green, who says that despite suggestions to the contrary, brokers should be actively mindful of their commission income. “I think commissions are really important. People say that you shouldn’t be looking at commissions when you choose a loan from a lender; however, you should be choosing lenders on your panel based on commissions, because your business ultimately has to make a profit – we have to be profit mechanics,” Green told Australian Broker TV. Green says that now is the time for brokers to be shopping around and looking at their business plans, to see if they can draw more profit from commissions. “It is the end of financial year, and we are looking at how we can increase our margin. Doing this is one very simple way of increasing the profit of your business.” And Green says that the future looks bright for commission income, despite brokers having suffered a severe 30% cut to their income during the financial crisis. “I think we have bottomed out on commissions,” Green says. “I see upward pressure, in fact, on commissions. I see that non-banks are being competitive in the • Brokers should choose based on commission • Future for commissions look bright • Non-bank market share to grow
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Tim Brown, Vow Financial
You should be choosing lenders on your panel based on commissions, because your business ultimately has to make a profit market with the increased margins that are being included in bank rates, and that has enabled non-banks to enter the market again with a more competitive borrower rate and a higher commission proposition to brokers, which is very compelling, and it will be very interesting to see in the coming months watching the non-bank market share grow, which is my prediction,” he says. Vow Financial’s Tim Brown says Vow actively promotes all the products and service from its panel lenders, including the propositions of non-banks. “We give them all equal time and don’t favour one over another, and what we find is that a number of our brokers are starting to use other products,” he says. In fact, Brown says Vow is “a big fan” of non-banks, internationals and regionals, and boasts the highest percentage volumes written for these competitors among aggregators. “Twenty-eight per cent of our volume actually goes to those groups, whereas the industry average is up as high as 88–89% [to the majors]. That’s certainly not the case with Vow, and we don’t have a white label product either,” Brown says.
“Brokers should get on board with this 100% really quickly,” says Barrie Gaubert of Iden Group, speaking about the National Rental Affordability Scheme (NRAS). “I think investors are interested in this because it is a very good incentive for them, and I think the scheme from the government’s point of view is very good because it is actually attracting the right, good quality tenants that investors want,” Gaubert explains. Kiran Saldanha of The Finance Professionals agrees the NRAS scheme – which only has two years to run – provides good opportunities for the right investors. “NRAS fits into the strategy, in terms of my clients, because it brings to the fore a negative gearing possibility with refundable tax offsets that actually let a person look at a positively geared property from the cash flow perspective,” he says. “Also, from the perspective of now being able to hold property in self-managed super funds, with the benefits that NRAS brings to the table, it’s really an ideal opportunity,” he says. Saldanha says that many investor clients will find the scheme useful – if they can find the stock. “From a broker perspective I am struggling at this point in time to find good stock for my clients to invest in,” he says. “We have got two years before this scheme runs out for people to jump into it, and I would think most risk profiles out there from a client’s perspective would allow them to hold an NRAS property,” he says.
Barrie Gaubert, Iden Group
• Investors like NRAS incentive • Lack of good stock for investor clients • Relevant to most client risk appetites Gaubert said that brokers should brush up on the ins and outs of NRAS before they launch into the market. “A generalised broker can get into it, but it would make sense to have some training associated with what the NRAS rules, regulations and requirements are,” he says. “That would apply also to the investor. An investor should get their own financial advice before they do go down this path, because if they don’t have a 10-year view on property investing then it is the wrong sort of property investment for them,” he says. And, in fact, if brokers aren’t in the market, they may be losing out to someone who is. “It is appropriate for brokers because the brokers are looking to diversify and they are assisting their clients, and if their clients don’t get helped by the brokers themselves, then they will look for brokers that can help them,” Gaubert says.
I’m struggling at this point in time to find good stock for my clients to invest in, and we only have two years
Kiran Saldanha, The Finance Professionals
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FORUM
‘The computer says no’ to older borrowers Brokers flocked to the Australian Broker Online forum in June to detail numerous experiences of older borrowers being knocked back by the banks. Australian Broker reported that Ray Weir of Financial Solutions in WA had written to Treasurer Wayne Swan to demand legislation be changed to help older borrowers access credit. Brokers responded with a litany of experiences and opinions on their older clients, many of whom had been refused credit due to potential hardship. John Robbo was quick to weigh in, saying the problem “badly needs looking at”. “A classic example is a client of mine who is 56 and has a very high salary. Lives in a 9-bedroom, 5-bathroom home in Sydney. Property is worth $2.7m and wants a $1.1m refinance. Nobody will do it,” he explained. “He wants to sell the home on or before retirement as it is massive and far too big for two retirees – but all lenders say that selling the property is unacceptable – even though he would have to sell the property if it was unencumbered because of its size. This policy is ridiculous!” Despite other similar cases coming to light, SteveOz disagreed, saying “it’s just not that simple”.
Sony Bank made a splash in July when it announced it would take on the Big Four with an online direct offering – but were brokers impressed by the move? It is very hard to see how a broker customer would change to an online application situation; customers come for advice and to discuss their requirements. This is why brokers have such a large market share. This will probably see more competition for the borrower who wants to and always was going to go on to a direct online application. Country Broker on 09 Jul 2012 10:36 AM Sony would be well advised to review just how unsuccessful Virgin’s attempt at the same strategy was. If Sony seriously want market share, they should embrace brokers. Damien on 09 Jul 2012 11:19 AM If price is the only consideration, people will flock to it. Unfortunately, many FHB and younger borrowers are thinking that way. It is the mortgage broker’s role to ensure borrowers are not sucked in by cheap rates alone. Borrowers need to think about product features (offset vs redraw), to cross or not cross-collateralise, to fix or not fix rates, think about repaying your loan in such a way that you don’t miss out maximising your options when it comes to refinancing some time down the track. These things brokers should be good at and adding value to their clients and it is something I’m sure online channels can’t provide. KT on 09 Jul 2012 11:30 AM
They (Sony Bank) will do better than anyone is saying. The brokers, consultants and advisers tend to promote their own self-interest rather than the customer. The terms and conditions of many offers skew all the risk onto the customer and are high by world standards to profit the lender and broker. Customers now realise this is the new normal in the global economy and can compare online what’s on offer and the terms and conditions as a best fit for their needs. Phil from Brisbane on 09 Jul 2012 12:56 PM We do need to be very conscious that consumer behaviour is changing fast, and going forward people will be more and more willing to source a home loan online. Fulfilment is still a challenge but it won’t be that way forever and that is why AFG is investing in systems and tools to help its members with the evolving online world. Other brokers need to ask their aggregator what they are doing to help them. Mark Hewitt on 09 Jul 2012 01:10 PM If they are foolish enough to use an online system without proper and professional advice then they deserve to get stung. Not the client type I deal with so it will never affect me. I wish them all the luck as they will need it. Garry on 09 Jul 2012 02:10 PM I wonder if Sony Bank will give away a free TV or PlayStation with every new loan sold? A Broker on 09 Jul 2012 03:15 PM
“The NCCP will never address longevity matters and no government will legislate that lenders should take on risk shareholders would not want it either.” BJ on 26 Jun 2012 11:40 AM “Given today’s environment where people are unable to take responsibility for their actions and change their minds like the weather here in Melbourne, you can’t just take a client’s undertaking that they will ‘sell’ their property upon retirement if they can’t afford the repayments. You’ve basically put them into hardship anyway!” he said. However, this was enough to make some brokers’ blood boil – as Judy West exclaimed. “We certainly live in ‘Nannysville’ in Australia where we treat anyone over the age of 55 (the new 75) as incompetents,” she said. BJ detailed his understanding, which included the longevity risk of a client, and the lack of desire on the part of the bank to be left holding a physical property asset.
When an Aussie survey found over 30% of consumers were largely ‘clueless’ about their interest rates, brokers had differing opinions on whether rate attention was sensible or obsessive.
loan on a regular basis. scopher on 04 Jul 2012 11:17 AM
I am amazed the percentage isn’t lower; most consumers think that once the loan is in place their duty is done. Most never return to look at the percentage as they have more important things in life to worry about, like paying off the credit card, interest-free term on that TV coming to an end, etc. That is why this industry needs to stand up and be proud. Gary Perth on 04 Jul 2012 10:38 AM
Scopher...totally agree with you there. I can’t be bothered reviewing my interest rate every month and comparing it to other loan products. Geez... what’s 0.5% here and there.....the Big Four lenders keep changing position in terms of cheapest to dearest every RBA rate change anyway! One day it’s Westpac dearest, next cycle it is ANZ, next cycle it’s CBA and then next cycle its back to Westpac. Why waste time constantly chasing the cheapest rate out there? Poor advice from John Symond who is supposedly an expert on these things. KT on 04 Jul 2012 12:57 PM
It would be a sad obsession if you had to know exactly the interest rate on your home loan at any point in time as Symond suggests. Better advice would be to make sure you get the right loan in the first place and work with a broker who will review your
Symond is absolutely correct and that is why a good broker should have a quality customer contact program in place to keep them informed. Information is power for both the customer and the broker. Jason on 04 Jul 2012 02:11 PM
On the MFAA’s help to Singapore... Phil, what are you doing with our money? I am assuming this relationship with Singapore will require both labour and expenditure (ie trips overseas) from MFAA funds which will ultimately be paid for by increased member contributions. I have watched the waste and excesses generated by the MFAA over the last 10 years increase with every rise in membership fees. Concerned on 10 Jul 2012 10:40 AM
Source: Australian BrokerNews
I am proud the MFAA is doing this. It’s inexpensive and a very nice gesture to Singapore, plus it will enhance our image to those who appreciate bridge building in our region (the gov’t for example). IF ANY BROKER seriously has an issue with the MFAA yearly membership fee you should retire now or work in a bank branch, as broking isn’t working out for you. Incognito on 10 Jul 2012 03:37 PM
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What a difference a year makes … or not. Australian Broker reflects on the punditry, breaking news and influential trends that made headlines in the magazine 12 months ago Australian Broker Issue 8.14
Headline: Bank wars could see commissions rise (page 1) What we reported:
What’s happened since:
After an erosion of commission income since the global financial crisis, National Mortgage Brokers’ managing director Gerald Foley predicted that brokers could soon see a rise in commissions as banks went head-to-head in a tough credit growth environment. Foley said the majors would reach a position where their only option was to make their broker proposition more attractive – and this could turn attention to commissions. However, he warned that major banks would only do this so long as it suited them. “The banks have come down a bit on their margins,” he said at the time. “Once they’ve gotten to that market dominating position though, they will begin to sneak them back up.”
Despite continued speculation from various industry pundits that commissions could soon rise as banks fight for market share, the majority of changes in this space have been readjustments designed to put lenders back in the market after previous commission cuts rather than significantly increase remuneration. For example, St.George reintroduced year-one trail in an effort to spur volume growth. The view of the majority is that lenders have reached a comfortable commission level, and with continued pressure on bank margins, it is unlikely that commissions will be heading north any time soon. Banks have even admitted that there is continued downward pressure in such tight conditions.
Headline: ASIC on the prowl with fines, bans (page 2) What we reported:
What’s happened since:
ASIC began turning up the heat with its monitoring activities mid-last year, after the regulator became responsible for credit oversight and enforcement. In June of 2011, ASIC handed out its first infringement notice, slapping an unnamed Sydney broker with a $27,500 fine. It followed this by issuing Victorian broker Kristy Ann Lake a permanent ban after she pleaded guilty to fraudulently obtaining finance by using another person’s name on loan applications. ASIC warned it would continue active surveillance
While ASIC has continued to intermittently fine and ban mortgage brokers over the past year, the regulator has yet to imitate its more heavy-handed approach in parallel sectors, such as that it has demonstrated in financial planning. Brokers have been given leeway to adapt to the new credit regime, and while ASIC has been more light-touch, brokers can expect a crackdown in the near future when the regulator gets serious about enforcement. The majority of brokers sanctioned were previously banned by the MFAA.
Headline: ‘No-go’ fee a no-go (Page 6) What we reported:
What’s happened since:
Consumers were just not ready to be slapped with a ‘no-go’ fee according to Mortgage Choice’s Michael Russell, who had previously been up-beat about the possibility. While franchises had expected to transition to a ‘no-go’ fee model to compensate brokers for work done for clients that did not end in an actual deal, Russell said that new consumer research showed that customers were not inclined to accept a fee at that stage, and Mortgage Choice would hold off on implementation for the foreseeable future. “The percentage of respondents who were not yet willing to pay a fee for service was higher than we hoped for,” said Russell.
Fee-for-service continues to be a hot topic of debate within the mortgage industry, with many brokers going out on their own on the issue, introducing a variety of different fee structures to shore up their income. While individual brokers move more towards a fee-based model, large franchise operations are still more comfortable with their traditional ‘free’ broking service, and have not moved to sanction a new model. However, they have come under pressure from their own franchisees, who are looking for ways to make their businesses profitable following the financial crisis fallout. Franchises have been quick to spur diversification as a measure to ensure this growth.
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Toolkit
Future property and SMSFs The rules around clients purchasing not-yet-developed property using limited recourse borrowing within SMSFs just got a lot clearer, explains SMSF guru Aaron Dunn
I
The practical approach taken by the Commissioner provides both clarity and some exciting opportunities for the acquisition of real property within a selfmanaged super fund
t’s quite amazing how far we have come with limited recourse borrowing arrangements over the nearly two years since changes were introduced on 7 July 2010. Many people would recall at that time of the introduction of sections 67A and 67B into the SIS Act that many within the industry were highly critical of the very strict limitations that appeared to be imposed with the single acquirable asset definition, along with the supposed inability to make any changes to a particular asset held under such a borrowing arrangement. The final SMSF ruling, SMSFR 2012/1 on the application of key concepts with limited recourse borrowing arrangements, has certainly seen this view come full circle as the practical approach taken by the Commissioner within this ruling provides both clarity and some exciting opportunities for the acquisition of real property within a self-managed super fund. With the property market facing its own challenges in respect to attracting buyers, we have seen a shift with property developers looking to target the SMSF market to promote property to trustees as part of their fund’s investment strategy. The original draft ruling issued in September 2011 provided clarity around the ability for a fund to acquire off-the-plan apartments, where the borrowing arrangement was entered into at the time the property was completed and strata-titled. It appears that the final ruling, SMSFR 2012/1, has expanded the Commissioner’s view in respect to how an LRBA can be entered into to acquire property to be developed (whether an off-the-plan apartment or house and land).
So what has changed from the draft ruling to the final ruling in respect of property development?
The draft ruling discussed that a borrowing could only be entered into for an off-the-plan purchase once the property had been completed and strata titled. This meant that the SMSF was required to fund the initial deposit and then obtain the SMSF limited recourse loan for the completion of the property. This view appears to have slightly changed within the final ruling whereby, if a contract is entered into for an off-the-plan purchase of a strata titled unit (that is, the purchase of a unit that is yet to be built and strata titled) and under the contract a deposit is required upon entering into the contract with the balance payable at settlement after the unit is built and strata titled, each payment is applied for the acquisition of that strata titled unit. Providing that the strata titled unit is a single acquirable asset, the deposit and the balance payable at settlement may be funded under a single LRBA. The final ruling also expands in the construction of a house on land through the use of a limited recourse borrowing arrangement. Previously it has been the understanding that when it came to the development of
house and land, the draft ruling inferred that the land was the single acquirable asset and once a property is added it becomes a different asset (replacement), which is not permitted under section 67B. Whilst this to some extent remains true, the final ruling outlines that a similar outcome results (to an OTP apartment) if the contract entered into is for the purchase of a single title vacant block of land along with the construction of a house on that land before settlement occurs. In this situation the deposit paid upon entering into the contract and the balance payable upon settlement is applied for the acquisition, under that contract, of land with a completed house on it. The deposit and the balance payable at settlement may be funded under a single LRBA. The ruling provides two examples of how structuring the purchase of house and land will ultimately dictate what is a single acquirable asset.
1. Purchase of land and construction of house using borrowings
The trustees of an SMSF want to enter into an LRBA where the single acquirable asset is a vacant block of land. The SMSF intends that the borrowing will provide sufficient funds for the construction of a house on that block. Assuming that title to the vacant land transfers to the holding trust prior to the house being built, it is the vacant land that is acquired and held on trust under the LRBA. This arrangement will cease to satisfy the requirements of section 67A if money borrowed under the LRBA is subsequently used to construct the house and thus improve and fundamentally change the character of the asset held on trust (that is, from vacant land to residential premises). This outcome is not altered even if the contracts entered into for the acquisition of the land and the construction of the house contain clauses linking the two contracts.
2. Acquisition of a yet to be constructed house on land using borrowings
The trustees of an SMSF want to enter into a contract to acquire, as a ‘package’, land with a yet-to-be-constructed house on it and to fund the acquisition using borrowings under an LRBA. As the contractual arrangement is for the acquisition of land with a completed house on it, and settlement occurs once construction of the house is finished, the deposit and the payment on settlement can be funded under a single LRBA . It is the Commissioner’s view that the second arrangement is for the acquisition of a single acquirable asset, being the land with the house constructed on it, as distinct from the first where the single acquirable asset is the land only. The views expressed within this final ruling certainly open the doors for SMSF trustees to consider a greater range of new property development opportunities using limited recourse borrowing arrangements. I think it would be fair to say property developers will certainly be ready and waiting. Aaron Dunn is one of Australia’s leading SMSF experts, providing strategic advice and direction for SMSF Trustees and financial services professionals including accountants, planners and lawyers
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New financial year tips for growing your business 7 Bibby Financial Services MD Greg Charlwood outlines how businesses can review their financial position and strategies for growth this financial year.
1
Refresh your vision of success
Take a measured look at your business as it stands – where are the opportunities for growth? What can be improved upon? Explore ways of optimising your current business, or creating new products or services for your current customers.
2
Don’t neglect administration
Creating an organised filing system for paperwork and invoices can take the headache out of credit management. Disposing of outdated paperwork and staying on top of sales ledger entries, credit notes and adjustments will help to prevent cash flow problems from occurring and ensure your business is organised and capable of achieving growth.
3
Do your credit checks
While new business prospects are particularly exciting in the current business environment, always ensure you carry out credit checks on new customers. This will allow you to identify trends in their repayment behaviour and avoid any payment issues in the future. Credit checks can be done quickly and relatively inexpensively. Circumstances affecting existing customers are constantly changing, so it is also worth regularly reviewing their status .
4
Manage your customer relationships
Be sure to maintain open lines of communication between your business and its customers, ensuring that you continue to refine customer service standards. Maintaining a close relationship with your customers will help establish a reliable source of sales revenue and minimise issues with repayments.
5
Ensure invoices are issued in a timely fashion
Get the best from your suppliers
Assess your suppliers and confirm that you are getting the maximum value for money that the market permits, comparing rates and prices from other suppliers to ensure that you are minimising your operating expenses. Take particular note of any special deals or discounts on offer and try to negotiate longer credit terms.
8
Why not try debtor finance?
Cash flow is an essential indicator of the health of your business. Sticking to cash flow budgets and ensuring invoices are paid in a timely fashion is paramount. If your cash flow is limiting your working capital, look into alternative forms of financing. Thirty-four per cent of small businesses report that they are more likely to consider non-bank finance in the current economic climate. For example, debtor finance providers can pay up to 85% of outstanding invoices usually within 24 hours and also follow up your debtors for you.
9
Get your return in early
Don’t put off your tax return until the deadline is looming; get it underway as soon as is practical to get a more accurate picture of your cash flow heading into the financial year so you can concentrate on growing your business. Make sure your accountant has the transactional records needed to complete your return.
10
Take time out and celebrate your success
Take time out of your busy schedule to enjoy and reflect on your successes along the way, as surviving in the current economy is a sign of success. Running a small business is stressful and there are many challenges along the way. Taking a well-earned break will allow you to renew your energy and focus for the year ahead. Employees too are at their most productive when they feel valued and acknowledged, so reward your team for achieving their objectives with inexpensive staff events during the course of the year.
Timely issuance of invoices is the cornerstone of a healthy business cash flow. Our Bibby Barometer research showed that half of Australia’s SMEs are experiencing delays compared to a year ago, and so invoices that are issued early and are diligently followed up will allow your debtors plenty of notice to pay their receivables, improving your cash flow.
6
Keep tabs on your competitors
Knowledge is power, and keeping track of who your competitors are and what products and services they offer will give you the power to stand out in the crowd. Keep abreast of news and developments within your industry and take note of any new trends.
Greg Charlwood
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Insight
How to make strategy sessions work Paul Lahiff is no stranger to mortgage broking, having spent time at the helm of Mortgage Choice. He shares his tips for making strategy sessions work
Experience suggests that many strategy sessions end up biting off more than they can chew
Paul Lahiff is a company director and consultant to the financial services sector; he has served as managing director of Mortgage Choice, Permanent Trustee and Heritage Building Society
A
real life situation: business management are finishing off their monthly meeting when a number of attendees begin to discuss strategy. There is never enough time, they say, at the meetings to really discuss the big strategic issues facing the organisation. So agreement is quickly reached on spending some quality time on the future strategy of the organisation and they agree to plan an offsite session to undertake this very important activity. Dates are set, an agenda established, a location decided upon and expectations are high. Unfortunately, when participants look back on it afterwards, there is general agreement that it had materially failed to deliver. What went wrong and what lessons can be drawn from exercises like this by mortgage broking businesses, who can sympathise with this all too common experience? Successful strategic planning sessions inevitably have a number of critical elements in place: 1. Allocate the time – Trying to fit the future of the company into a half-day is never going to work; management of a business needs to be prepared to put in at least a day-and-a-half so that all of the big issues get sufficient time and clear actions to address them. A really solid first day is vital so that by the time the group convenes for dinner there is a general consensus that the key items have been nailed, with the following morning left for wrapping up all the loose ends. 2. Get an external facilitator – Using an internal facilitator rarely works; these individuals should have as much input on the critical issues facing the organisation as anybody else in the room, and it’s almost impossible to do this at the same time as facilitating the session. It is usually worth the time and the cost of obtaining a good facilitator who understands the major issues, and who can draw out the key actions necessary, and involves all participants, and keeps the entire process moving forward. 3. Involve all key management stakeholders – Strategy sessions that do not involve all key management stakeholders are usually a recipe for failure; all parties with a legitimate interest in the future of the organisation need to be present and actively involved. Apart from the obvious advantages of enhancing teamwork amongst the leadership of the company, everyone involved will have strong ownership of the outcomes. 4. Put in the hard yards prior to the session – Analysis, assembling the data and facts, developing the agenda, and ensuring all participants arrive having thought about the major strategic items are all vital aspects of a successful session.
Turning up with the view that the session will run itself is simply not good enough. 5. Focus on the few big items – experience suggests that many strategy sessions end up biting off more than they can chew; there are usually no more than five or six strategic areas which will determine the success (or otherwise) of the session and more importantly, the organisation itself. Keep the agenda to this number – in this case, less is decidedly more. 6. Avoid the operational and hone in on the strategic – An issue is strategic if: • It has a material impact on the balance sheet and/or profit and loss statement • It has a medium to long term perspective • It involves risk • It provokes healthy debate If it doesn’t fit all of these criteria, leave it off the agenda. 7. Ensure follow through – Departing the session without an agreed set of actions, with specific accountabilities and timing, is leaving the job half done. All participants must have a clear understanding of what’s required of them – both individually and collectively – before the session wraps up. 8. Monitor performance – Having developed the strategy and the actions that will deliver it, management should ensure to report back on a regular basis on performance. This should be an essential element of the normal meeting process. 9. Keep it simple – The compelling vision that comes out of a successful strategy session should be capable of being articulated in 20 words or less to somebody who wasn’t at the session – staff, suppliers and clients will all have an interest in the strategy of the organisation and unless it can be described in simple to understand terms, they won’t sign up for it. There’s no particular magic in the points raised in this article; as with a lot of things in business, it comes down to adhering to a disciplined process in a logical and consistent manner. As Woody Allen once commented, 90% of success in life is turning up.
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Market talk consideration to its long-term value. They see property investment as a short-term thing and many don’t have the patience to hold property for the long term. While this may be concerning to an older investor, the positive is that Generation Y isn’t afraid to take risks and make a buying decision. What they lack in experience, they make up for in confidence. This will ensure that, unlike older generations, aggressive investments by Generation Y could lead to some smart investing from a young age and a healthy retirement strategy by default. Older generations commonly viewed property investment as a means to owning your own home. They are conservative and cautious with anything relating to debt; hence we are now seeing a charge to invest by people in their 50s and 60s as the hope for a prosperous retirement fades.
Are their needs vastly different from other generations?
When age matters Getting your share of the Gen Y market may require you to get to grips with their lifestyle, say those in the know
Gen Y is all about ‘what’s in it for me right now? How can I get rich quick?’
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t’s an age bracket that’s eluding brokers nation-wide. 20 to 31 year-olds are just not investing enough in property, and the numbers are dwindling. According to RateCity, the cost of a deposit – inflation aside – is four times higher than the 1970s, meaning those born after 1980 are starting on the back foot. There’s also the tricky issue of lifestyle versus affordability. A recent study in The Sydney Morning Herald showed Generation Y were renting where they wanted to live, and buying where they could afford. So, as a broker, how do you target this increasingly disparaging and picky bunch? We spoke to Loan Studio’s director Colin Sheppard – himself a member of Generation Y – on how to win them over.
How do you categorise Generation Y in terms of property investment?
I think you can split Generation Ys into two categories. First, you have ‘The Entrepreneur’. They are looking to make money quickly through aggressive investments, while still living at home with their parents. Second, we have ‘The Dreamer’. The Dreamer wakes up one morning and needs to buy a house, because all his mates are buying. For the Dreamer it’s all about lifestyle, status and an extension on how they want the world to view them and less about necessity or looking towards the future.
What are their primary concerns?
The main concern for Generation Y is that the geographical location and purchase price must not impact their current standard of living. Generation Y commonly views property locations as great places to live, without asking questions like ‘will the location provide a strong performing investment?’ They look at property as a disposable asset that can be sold should their lifestyle or living standards diminish. Colin Sheppard
How do they approach risk?
Typically, Generation Y buys property with much less
While I don’t believe the underlying needs are all that different, I do believe the motives can be. In many cases, Generation Y’s needs are largely driven by the need to be independent and the natural progression into their next phase of adulthood. Older generations’ needs are geared towards retirement strategies and upgrading their existing property to accommodate their 30-something Generation Y child who refuses to leave home!
How does technology and social media play a role?
Generation Y is very savvy and uses different mediums to research prior to making a buying decision. They rely on technology and are heavily influenced by their inner circle of friends when making a buying decision. This is in contrast to older generations who seek professional advice, read articles and magazines, and attend property investment seminars to research prior to purchasing.
What’s the most important way to target Generation Y?
It’s less about renting verses buying and more about how the purchase will change their lifestyle for the better. How it makes them appear to friends and family, and moreover, the fact that it does not put their lifestyle at risk, is very important. I think you also need to demonstrate how their life will benefit from such a purchase through examples of other Generation Y success stories.
Lifestyle aside, what else is important for brokers to keep in mind?
I think you need to market with their priorities in mind; travel, food, entertainment and a rich social calendar and how property can help them leverage funds for these more quickly than savings can. You need to show them how they can use this investment to become financially independent.
Ask a veteran: what broker Paul Gollan thinks • Generation Y places a big premium on lifestyle • Many are inclined to rent where they want to live and purchase where they can afford • Generation Y is less cautious than Generation X about taking on large amounts of debt • They’re far less inclined to compromise than older generations • They’re more likely to put off purchasing property to pursue other lifestyle interests • Show them they can buy a property in a suburb they can afford and still rent in a suburb that they want to live in
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Commercial brokers face uncertain retail future For brokers working in the commercial sector, this should come as no surprise: retail property is facing a very uncertain future. The threat of online shopping, poor consumer spending and rising property costs is stunting growth, according to BIS Shrapnel’s Retail Property Market Forecasts and Strategies 2012 to 2022. The report found growth will average just 2.9% in the next five years, compared to a 5% average growth rate experienced in the pre-GFC 1990s. The report’s author, Maria Lee, says the next few years will be frustratingly slow for investors looking for a profit. “While we expect turnover growth to strengthen through 2012/13 and 2013/14 in line with a strengthening Australian economy, growth will remain fairly subdued in the medium to long term,” she said. Blame it on technology. Lee says increasingly online-savvy consumers have a “two-pronged” effect on traditional retailing, with a proportion favouring online shopping, and another using price comparison sites to get better deals. It’s putting enormous pressure on traditional bricks-and-mortar retailers to up their game. “Consumers are using price comparison websites or apps on their mobile phones when in-store, and then demanding a price-match in order for them to buy there and then. This can have an impact on retailer profit margins,” said Lee. She advised retailers should “work
harder than ever to sustain growth. It’s critical that they use the internet diligently and creatively to service their customers and enhance the in-centre shopping experience”. So, in practical terms, how does it affect commercial brokers? The increasing gap between retail property construction – which is surging – and actual profits is another major problem. It may cause investors to retreat, thereby making new business tricky for the commercial broker. “If rent is going up by 4% a year but turnover is growing by less than that, occupancy costs rise. Specialty shop occupancy costs are at an all-time high. They are unsustainably high for some tenants.” Any notion of rent hikes benefitting property owners is quickly discounted by Lee. “Those costs are leading occupants to either not renew at the end of the lease or demand a cut in rent to stay. If they leave, the incoming tenant is achieving a more attractive offer, in a combination of lower rent and/or leasing incentives.”
NUMBER CRUNCHING
2.7%
2.0%
2.0%
1.0%
-1.1%
1.0%
In the next 12 months, will financial times be good or bad in Australia?
53.5% Expect business to be better
46.5% Expect business to be worse
Source: Roy Morgan Research
Source: RP Data-Rismark
Hobart
Canberra
Perth
Brisbane
Melbourne
Sydney
At a glance… Adelaide
Darwin
-0.7%
1.0%
Controversial data: The value growth rate of capital cities in June 2012
$500k
*
* The price of a garage space in Balmain, Sydney
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People Bankwest boosts commercial bench strength
T
he new financial year has heralded a new commercial broker sales structure for one lender. Bankwest said it will combine its business development and broker sales teams together, in an effort to ensure reliability and consistency across the board to its commercial brokers. To be managed by Brian Steele as head of commercial sales, the move will see the bank put in place three regional managers that will spearhead the newly combined acquisition channel. “To ensure that we are in the
Justin Kinsey
best position possible to be successful and grow, the decision was made to merge the business development and broker sales teams together into one single acquisition channel and also embark on a selection process to establish three key regional managers who will join me in leading our newly combined team,” Steele said. “A great deal of time and effort has gone into finalising the successful candidates for these roles, ensuring that we have the right combination of leadership attributes, knowledge and skills required.”
Western Australia is set to be managed by Stephen Dargan, while Lisa Wright will oversee NSW and Queensland, and Darren Nelson will be responsible for Victoria and South Australia. “This new structure will ensure that our business development efforts complement each other and, as well as making us the biggest standalone acquisition team in the marketplace, it will ensure that we can deliver to the best interests of our broker partners,” Steele said. The move is pitched at making the bank competitive against the Big Four banking brands.
Brian Steele
CBA gives Vic, Tas new manager
Bibby appoints new Victorian BDM
The Commonwealth Bank has appointed Justin Kinsey as state manager of Victoria and Tasmania. Kinsey will replace acting state manager Corey Drew, who has been carrying out his permanent role as state manager of SA/NT, and will manage a team of six relationship managers. A former Queensland state manager for Commonwealth Bank mobile banking, CBA said Kinsey is well acquainted with the mortgage broking industry in Australia. He initially worked as a relationship manager for NAB’s Homeside business and later Homeloans Ltd, before joining CBA’s retail banking business five years ago.
Debtor finance business Bibby Financial Services has appointed Raffaele Giuliano as a business development manager in Victoria to service growing demand for debtor finance and expand Bibby’s presence in metropolitan and rural Victoria. Giuliano has more than 25 years’ experience working in the financing industry, most recently working for Octet Finance as a business transaction specialist involved in payment financing. Before that, Giuliano worked for over 15 years at Westpac as a member of the senior management team, with leadership and business development experience gained in both commercial banking and institutional banking businesses.
Raffaele Giuliano
PEOPLE MANAGEMENT
Burnout is back, but not if you’re the boss A recent study found people are more likely to experience burnout when they are exposed to continuous stress and feel they have no other work alternative. According to an organisational psychologist, those with high ambition but a lack of stress management skills are also at risk for burnout. “If you’ve got a new hire who has a real need to prove themselves in a position that has a relative degree of difficulty, desire to prove themselves can turn into a compulsion – they may lose work/life balance, neglecting their needs if they have obvious behavioural changes, something like depersonalisation can be a
strong indicator they’re on their way to burnout,” the psychologist Tim Hill said. Hill said workplace bullying is a leading cause of workplace stress and burnout, saying bullying often flies under the radar and workers sometimes feel reluctant to report it.
Causes of burnout:
• continual job-related stress • long hours • increased workload • poor stress or conflict management • workplace bullying
Warning signs:
• increased absenteeism
• increased workplace conflict • cynicism, isolation or detachment from others in the workplace Addressing workplace stressors and expectations can prevent employees from feeling overwhelmed. Responding to an employee’s ability to cope with stressors through stress management training can also be an excellent preventative measure, Hill said.
Considerations:
• set aside a dedicated relaxation space in the office that employees can use as a retreat when situations get stressful
• have a policy to limit lengthy meetings • feeling supported in the workplace can help prevent burnout, so consider implementing social wellness programs such as a lunch-hour walking club • flexible, or reorganised work schedules • consider offering stressed-out, long-serving employees with the opportunity to take paid/unpaid sabbaticals to travel overseas and participate in charity work • offer counselling services and encourage employees to make use of them • provide complimentary stress management training
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Caught on camera The FBAA hosted its inaugural national conference in June, where it urged brokers to ‘get on their feet and cement their future’. In the capable hands of MC Max Walker, the conference included presentations from Mark Bouris, ASIC’s Greg Kirk and included a fair share of networking
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Macquarie Bank was one of the first major organisations to adopt this egalitarian approach when it redesigned its Shelley Street building in 2008, with CBA having followed with stiff competition from its newly refurbished digs near Sydney’s Darling Harbour. Jones Lang LaSalle’s own office was recently remodelled – and the swapping of desks for lockers meant no awkward space shortage for its new staff. “We can keep adding people without having to add more real estate because we know there’s an inherent vacancy.”
“There it is, my last mortgage payment…”
Pennies for a house
I
nsider is known as one to squirrel away every coin he finds on the street – no matter what the value – and vindication after the insults he has endured might be just around the corner. One man who similarly ignored the ‘I’m too good to pick up that coin’-looks of passers-by recently rocked up to his bank in the US and paid off his mortgage. Hang on, his mortgage? Yes, mortgage payments can be worth a lot, but it turns out so can pennies – if you have enough of them. One man, who began picking up coins in his home town of Milford, Massachusetts in 1977 – that’s 35 years of not being above a practice shunned by many – set himself a goal of making his eventual final mortgage payment in pennies. And that’s just what he did – with a whopping total of 62,000 of them. “It was something I wanted to do, and I always follow through,” he said following the final payment that gave him his home outright. The man reportedly kept the coins safe in steel military rocket launcher ammo boxes until April this year, when he was finally able to lug his hoard to the Milford Federal Savings and Loan Association – after many prayers where he asked God ‘not to die first’. Having finally cleared the house after so long, the man reportedly has had enough of picking up pennies. “I’m too old to pick up those boxes of pennies,” he said.
Harbour view not good enough, say bankers While brokers might be content to
call a freezing car their office while on the road generating business this winter, it appears banking types are not so easily pleased. In fact, no longer content with identikit cubicles in their large corporate digs in the city (complete with harbour views of course), executives on the other side of the banking fence from the humble mortgage broker are demanding more from their office space – to the point where one could wonder if they go to their offices for work at all. One real estate firm has seen a spike in clients seeking ‘activity-based layouts’, which replace cubicles with open-plan spaces, break-out rooms and ‘chill-out zones’. “’You have neighbourhoods or hangouts, zones for different teams, not assigned desks. There are a variety of other settings that people can work from – quiet concentration areas, collaboration areas – each company has their own interpretation of that but at the heart … you work in different settings depending on the kind of activity you’re undertaking,’’ Jones Lang LaSalle’s head of corporate consulting Rajiv Nagrath said. Anyone tiring of their colleagues’ cluttered desks will be happy: paperwork and files would be stored in personal lockers. According to Nagrath, it comes down to making workers more collaborative. “The office is more transparent, people have a face. Earlier we’d just send something to legal or to finance and it’s some faceless person asking you to process stuff. Now you see people more because it’s more transparent,” he said.
Have you hired these people?
There will always be people around the office who leap to the defence of an individual who many find difficult – but for others, working with these individuals is nothing short of hell. According to Rick Brinkman and Rick Kirschner, the authors of a new book Dealing With People You Can’t Stand, an unfortunate reality is toxic personalities are inevitable. Do any of these venomous characteristics pervade your workplace? The Tank: Is overbearing, confrontational, pointed, aggressive and angry, bulldozing anyone and everything in their path. With not a moment spared for back-and-forth conversation, this person unleashes verbal blastings, accusations and scorn. But as suddenly as their attack unfolds, the whirlwind assault is over and they’ve moved past you. The Sniper: Hits through snide comments, biting sarcasm, or a well-timed roll of the eyes. Making you look foolish is the sniper’s specialty, and they have a knack for pouncing on even the slightest weakness. The Grenade: After a brief period of calm, the grenade explodes into unfocused ranting
and raving about things that have nothing to do with the present circumstances. The Know-It-All: Seldom in doubt, the Know-It-All has a low tolerance for correction and contradiction. If something goes wrong, however, the Know-It-All will speak with the same authority about who’s to blame – you! The Think-They-Know-It-All: Can’t fool all the people all the time, but they can fool some of the people enough of the time, and enough of the people all of the time – all for the sake of getting some attention. The Yes Person: In an effort to please people and avoid confrontation, Yes People say yes without thinking things through. They react to the latest demands on their time by forgetting prior commitments, and they overcommit until they have no time for themselves. Then they become resentful. The Maybe Person: In a moment of decision, the Maybe Person procrastinates in the hope that a better choice will present itself. Sadly, with most decisions there comes a point when it is too little, too late, and the decision makes itself. The Nothing Person: No verbal feedback, no non-verbal feedback. Nothing. What else could you expect from… the nothing person. The No Person: More deadly to morale than a speeding bullet, more powerful than hope, able to defeat big ideas with a single syllable. Disguised as a mild mannered normal person, the No Person fights a never ending battle for futility, hopelessness, and despair. The Whiner: Whiners feel helpless and overwhelmed by an unfair world. Their standard is perfection, and no one and nothing measures up to it. But misery loves company, so they bring their problems to you. Offering solutions make you bad company, so their whining escalates.
Dealing With People You Can’t Stand
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Published on Jul 17, 2012
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Published on Jul 17, 2012
The no. 1 news magazine for Australian brokers.