Australian Broker 13.17

NEWS State governments over-reliant on stamp duty?

55% of Australians want to decrease hefty levy P2

ANALYSIS Should banks be forced to cut business rates?

Major banks keep failing to pass on cash rate drop to SMEs P14

OPINION Jumping ship What brokers should consider before switching aggregators P18

SEPTEMBER 2016 ISSUE 13.17

COMMERCIAL Offshore buyers dominate CBD sales Foreign investors own more than two thirds of CBD offices P20

MARKET WRAP NAB: House values will be flat in 2017 Bank predicts softer market P22

STEVE SAMPSON Bank of Sydney’s Steve Sampson on the advantages of being a smaller bank, and why brokers are at the centre of the lender’s growth strategy P10

TECH FOCUS Brokers to benefit from fintech Partnerships will create value for customers, says FundX P26

BORROWER SNAPSHOT 2

NEWS

ASSOCIATIONS MFAA uses LinkedIn to push commercial brokers P4

REGULATION

LENDERS

Trail book scammer goes on trial

Unibank enters broker market

P6

v $250,000 - $699,999ISwTO CUT STAMP DUTY CONSENSUS

P8

BROKERNEWS.COM.AU EDITORIAL Editor Madelin Tomelty

55%

News Editor Julia Corderoy

Cut stamp duty

Journalist Maya Breen Production Editor Roslyn Meredith

What would be the best way for governments to assist the property market?

30%

Increase first home owner grants

ART & PRODUCTION Design Manager Daniel Williams Designer Martin Cosme Traffic Coordinator Lou Gonzales

15%

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

CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan

Abolish negative gearing

Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

Source: iBuyNew

SUBSCRIPTION ENQUIRIES

STAMP OUT STAMP DUTY Online property agency iBuyNew’s latest survey has revealed that more than half of Australians believe the best way governments can assist the property market and homebuyers is by slashing the cost of stamp duty.

While 55% of respondents wanted to cut stamp duty, 30% of participants in the online survey suggested increasing first home buyer grants would be most effective, while 15% called for negative gearing to be scrapped. iBuyNew CEO Mark Mendel said most governments remained over-reliant on stamp duty.

“State governments still have an unhealthy dependence on stamp duty, which is just a drag on the economy and a handbrake on homebuyers,” he said.

“If governments are not prepared to abolish stamp duty they should

Madelin Tomelty +61 2 8437 4792 Madelin.Tomelty@keymedia.com.au tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au

ADVERTISING ENQUIRIES

Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak +61 2 8437 4772 rajan.khatak@keymedia.com.au Key Media Pty Ltd Regional head office, Level 1O, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 www.keymedia.com Offices in Sydney, Auckland, Denver, London, Toronto, Manila, Singapore This magazine is printed on paper produced from 1OO% sustainable forestry, grown and managed specifically for the paper pulp industry

at least consider reductions or more concessions for certain buyers.”

Mendel said greedy state governments had also been behaving badly by slugging foreign investors with excessive new surcharges and tax increases.

“Foreigners buying property in Australia should be paying some tax but the measures that were recently announced by the NSW, Victorian and Queensland governments were over the top,” Mendel concluded.

Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss. Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

ASSOCIATION HAPPENINGS 4

MFAA TURNS TO SOCIAL MEDIA TO PROMOTE COMMERCIAL BROKERS The MFAA has launched a campaign on the world’s largest professional social network, LinkedIn, to promote members involved in commercial and equipment/vehicle finance.

The aim of the campaign is to emphasise the educational advantage that MFAA brokers have in the mortgage industry, and communicate that they are experts in their field.

The campaign, which will target the 219,000-plus business owners and operators who are active on LinkedIn, comes in response to research that indicates that a stronger education helps builds trust, which is a deciding factor for SME owners in selecting a finance provider.

“LinkedIn is a crucial channel for the commercial lending sector. This campaign will direct businesses to our consumer information portal, Mortgage & Finance Help, where they will learn about the advantages of engaging an MFAA broker and then they can search for a member,” stated Emily Watson, digital marketing

and social media manager at the MFAA. “We have consulted a number of commercial brokers from around the country to gain insight on the pain points of their SME customers, which has enabled us to develop relevant messaging to effectively target the small business owner market on LinkedIn. Our ads will be front and centre on their screens for an entire month, then we will analyse the insights and formulate subsequent campaigns based on the traction and responses,” said Watson.

“SME owners are generally time-poor and will use online information to seek out potential suppliers.

They are looking for experts to solve their problems, and this campaign helps highlight how our members do that. This marketing initiative will expose SME decision-makers to a database of the best-educated brokers in Australia,” Watson stated.

The campaigns are designed to cover both metropolitan and regional areas and drive enquiries to members.

DATES TO WATCH

A rundown of the next fortnight’s events

SEPTEMBER

7

What: MFAA ACT Regional PD Afternoon Where: TBC Details: A PD afternoon to get MFAA ACT members up to date on the latest industry information.

WHAT THEY SAID...

SEPTEMBER

Shane Oliver “I think it is incredibly dangerous to say that [the banks] have to automatically pass [cash rate cuts] on.

In history, the period of automatic pass-through was a brief one … Prior to that, the relationship has been very loose” P14

Blake Buchanan “The broker/aggregator partnership is no longer merely a transactional support mechanism but has become more of a whole-of-business proposition” P18

Shane Garrett “[The ABS’s] data indicates that the benefits of lower interest rates trumped any reluctance by buyers to enter the market during the tight election race. It’s therefore likely that [the] interest rate cut will help bolster activity on the new home building side” P22

7

What: FBAA National Tour: Build Your Vision Where: Darwin, location TBC Details: Speakers will discuss the differences in the marketplaces, digital disruptions, and the FBAA’s top industry performers will share their knowledge about their road to success and how you can do it too.

SEPTEMBER

8

What: Coming Together: The Rise of Fintech and Future of Financial Services Where: Sydney, location TBC Details: The Next Bank Sydney group meet-up will include guest speakers and discussions exploring fintech and the future of financial services.

REGULATORY ROUNDUP 6

WORLD NEWS UNITED KINGDOM The BBC has reported that a shake-up in the UK’s retail banking has been criticised by consumer groups and economists for not going far enough.

The Competition and Markets Authority (CMA) report, which was two years in the making, is geared towards improving competition and the products on offer for individuals and small businesses, and was meant to transform the UK’s retail banking industry.

The report concluded that new phone-based apps could show customers which banks may offer the best account. In addition, banks will have to set maximum monthly fees for unarranged overdrafts.

The CMA decided against a cross-industry cap, leaving individual banks to set their own charges. Alasdair Smith, chair of the CMA’s retail banking investigation, told the UK’s Today program: “Heavy-handed regulation would run the risk of reducing the availability of unarranged overdrafts.”

The CMA said there would be other measures to encourage people to switch accounts.

“The reforms … will shake up retail banking for years to come, and ensure that both personal customers and small businesses get a better deal from their banks.

“Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy,” said Smith.

According to Australian online news portal The Conversation, the watchdog has put the onus on bank customers rather than excessive bank regulation to improve market conditions.

It said their lack of engagement with the market “weakens banks’ incentives to compete” and contributes to the costs involved for challenger banks to gain a foothold in the market. Therefore its package of remedies focuses heavily on measures aimed at stimulating consumers to shop around and making it easier for them to switch.

“The new third-party services that are being proposed may help to make banking differences more visible. In addition, the CMA will require banks to gather, publish and share data on the quality of their services, including whether existing customers would recommend their bank to friends, family and colleagues,” The Conversation stated.

The CMA measures require banks to send existing customers prompts, suggesting that they shop around for a new account. These may be on a regular basis and also triggered by events, such as your local bank branch closing down.

ASIC RELEASES ENFORCEMENT REPORT

Summary of key enforcement results by misconduct type, January–June 2016 101 investigations commenced

10 persons charged in criminal proceedings

93 investigations completed

96 criminal charges laid

24 individuals removed from financial services

75 infringement notices issued

$13.4m compensation/remediation

$1.12m infringement notices paid Source: ASIC

TRAIL BOOK SCAMMER WHITTINGHAM ON TRIAL Infamous trail book scammer Mark Whittingham has fronted Melbourne Magistrates’ Court on charges related to 50 counts of obtaining financial advantage by deception.

The five-day hearing began in the court on Williams Street in Melbourne’s CBD on 15 August.

Australian Broker attended Whittingham’s filing hearing in February last year, obtaining a list of the charges which show he stands accused of dishonestly obtaining $915,531.26.

The charges relate to incidents during the period from December 2010 to August 2013. The amounts alleged to have been dishonestly obtained from individuals range from as low as $218 to as high as $158,528.

In its sentencing, the court will take into account the 10 months Whittingham has spent on remand.

A broker and witness in the case against Whittingham, who Australian Broker has chosen not to name, claims he was one of the first brokers who started the case against Whittingham after he made two deposits, of upwards of $17,700, to Whittingham to purchase a trail book. He was, however, eventually refunded the deposits by

Whittingham after several attempts to get his money back.

The broker also told Australian Broker that Whittingham had represented himself in court.

“The whole reason I started this is so he would get caught and wouldn’t keep going … My whole purpose is to get him known and get him caught,” he told Australian Broker.

LENDER UPDATE 8

$

BY THE NUMBERS

9.billion2

Commonwealth Bank’s statutory net profit after tax for FY2016, up 2%

UNIBANK ENTERS BROKER MARKET Teachers Mutual Bank has announced plans to broaden its third party distribution footprint by launching its UniBank brand to brokers.

UniBank – formerly Unicredit – merged with Teachers Mutual Bank in August last year and services the tertiary education sector. Teachers Mutual Bank’s national manager of third party distribution, Mark Middleton, told Australian Broker that UniBank’s third party launch would give brokers access to over four million university graduates and their families.

“The UniBank piece is a much larger, broader, and more significant opportunity for brokers,” Middleton said. “The reason for that is we are focusing on graduates of university as one of our key segments.

“There are four million graduates out there and we have got brokers who continually want to be able to send us business, and this will be the gateway to make that happen.”

Middleton said UniBank would offer competitive variable and fixed mortgages for both owner-occupiers and investors; however, its big drawcard would be its first home buyer product targeting the four million graduates.

“We have a specific My First Home Loan product. The My First Home Product lends to 98%, inclusive of mortgage insurance and with a 40-year term,” he said.

“Some people might not like a 40-year-term, but I can tell you now, not everyone will go the full term. We understand – and that’s the difference – that for a first home buyer, their income stream is much lower. They can still pay as much as they want off that loan, but we are helping them get into that market [with that term].”

The product will also feature a 100% offset account.

Middleton said the decision to launch UniBank to brokers was a logical one, given the success Teachers Mutual Bank has seen through the channel.

“We have had tremendous support from the third party channel. It has been instrumental in our achievements,” he said.

“We are now seeing 25% of our flows coming through [the broker channel]. It was a logical fit considering we were so successful in the channel.”

HOMELOANS LIFTS BRANDED HOME LOAN SETTLEMENTS Leading non-bank lender Homeloans Limited lifted its branded loan settlements by 17.7% over FY2016.

According to the non-bank’s full-year results, released in August, branded loan settlements increased by $177m in the year ending June 2016, reaching a total of $1.2bn.

Non-branded loan settlements, on the other hand, fell to $670m over the year, a drop of 15.6%. Total home loan settlements over the year were up 3%, to $1.8bn.

This brought total loans under management at the end of FY2016 to $4bn, an increase of 3.6%.

“We are pleased with settlements growth of 17.7% achieved in the year and see the positive trends in submission and settlement activity continuing into FY2017,” said Homeloans CEO Scott McWilliam.

“This is due to our success in building our east coast presence as demand softens in some key markets such as WA. In addition, recent

cash rate movements and ongoing historical low levels of interest rates will support further positive momentum in settlements in the year ahead.”

McWilliam said the recent announcement of a merger with another leading non-bank lender, Resimac, would also boost further growth in FY2017.

“In line with our previously stated strategy of actively pursuing both organic and inorganic growth opportunities, the proposed merger with Resimac represents an ideal opportunity for shareholders to benefit from an enlarged and more diversified combined business.”

On 20 July, Homeloans Limited announced it had entered into a Scheme Implementation Agreement with Resimac, under which Homeloans would merge with Resimac through the issue of new Homeloans shares to Resimac shareholders and the acquisition by Homeloans of all of the shares in Resimac.

BROKERS DRIVE CBA’S MARKET SHARE GROWTH

In the 2016 financial year CBA…

HAD A 6.8%

SETTLED

$101BN

GROWTH

WORTH OF HOME LOANS

IN ITS HOME LOAN PORTFOLIO, TO

49% HAD

$409BN

OF NEW HOME LENDING WRITTEN BY BROKERS

A 4% INCREASE FOR THE YEAR

ACHIEVED A

25.3% MORTGAGE MARKET SHARE

2%

INCREASED THE BROKER MARKET SHARE OF ITS TOTAL AUSTRALIAN MORTGAGE PORTFOLIO BY UP TO

45%

10

COVER STORY MAKING A MARK

While Bank of Sydney is a relatively new player in the third party channel, that doesn’t mean it has entered the mortgage match with less to offer.

Head of third party distribution Steve Sampson explains why being a smaller lender comes with its own set of benefits for customers and brokers alike

HAVING ONLY been in the third party channel for 12 months, it’s no secret that Bank of Sydney is on a mission to grow its footprint and spread brand awareness. The second-tier lender wants to ramp up its profile, exposure, and make it known to the industry that it’s not afraid to get competitive. These colours were shown recently when it came through as one of only a handful of banks to pass on the full 25 basis points from the 2 August cash rate slash to its customers.

This is the bank’s motto, and both Sampson and executive general manager of commercial banking Fawaz Sankari stress it a number of times to Australian Broker. One of the ways the bank is attempting to live up to this motto is by battling channel confict.

The rates offered direct to customer and to broker are the same, whether for residential or commercial lending, giving brokers peace of mind that they won’t lose their customers to the bank.

“I think the larger banks are very complacent with brokers, and we really value them and we know that they are going to be the source of our success, to a large degree” “That was a strategy in place for marketing and for the benefit of the brokers who could take advantage of that,” says head of third party distribution Steve Sampson. “We have to give something to get something back.

“Through the third party it’s a really good way to build up our brand and our footprint because when brokers sit in front of their customers … we automatically get exposure across a lot of different communities, people, places, etc.”

Sampson explains that brokers are absolutely crucial to the bank’s lending arm, and moves like passing on the cash rate drop are just some of the ways Bank of Sydney is rapidly gaining traction among brokers in the home loan market.

“We’re pretty strong on service levels, products and commission rates as well … And I think they’re the things that get [brokers] to work with you, and then you extend the relationships from there. So, for me, the end strategy is relationship banking. That’s what we need to do. And the bank’s vision is to be ‘Australia’s only true relationship bank’.”

“That’s important to know – that the broker relationship is with the broker division. I think sometimes those lines are blurred,” says Sankari.

“I’ve worked at a number of other banks in the past 20 years, and sometimes the front-line guys try to hijack the relationship and the broker tries to somehow circumvent the process as well, because they know the distribution channel’s pretty busy so they try to go direct.

When it comes to channelling deals, [the bank staff ] have to go through our broker channel before they come through us, so there’s a key differentiator there.”

Bringing back the bank manager While this is good news for brokers, the really interesting thing about Bank of Sydney’s model is that every customer gains a relationship manager at a branch when they take out a loan, and this goes for the broker channel, too.

“So far we’ve been using our branch managers to handle all the loans that come in,” says Sampson. “The strategy is a little bit different for us. What we do is when a loan is approved

we allocate it to a branch, and that branch will look after that customer.

“One manager will handle the loan when it comes in, and they will manage it all the way to settlement ... and they will set up all the other accounts for the customer as well … so the customer gets a bank manager when they get a loan,” he explains.

With this model, he adds, that loan sits on the allocated branch’s book, giving the branch full profitability for that loan.

But the question is: how does this model appeal to brokers, and how does it trump the standard model of brokers dealing with a lender’s central repository?

Sampson is of the mind that the structure benefits both parties, with the broker operating as a lead generator and the branch manager operating as a relationship point of contact for the customer, much in the style of the long-abandoned personal bank manager.

“The responsibility of the broker is no different than if they were dealing with a central area,” he says.

“We say to the brokers that because it sits on the branch, the branch manager wants to help, so they will help you. We also delineate those loans to the broker in our records as well, so if a customer calls us about a top-up or discharge, we’ll contact the broker and let them know that something is happening with their customer.

So we form this relationship where we’re both looking after the customer.

“Brokers come back to us because our managers look after their customers really well.”

Big things, small packages With 16 branches in Sydney, Melbourne and Adelaide, Bank of Sydney is undeniably small, but according to Sampson this means the bank is equally nimble, flexible and, above all, personal.

“Because we’re small, we’re fairly nimble, and rather than using a point score system to assess our loans, we actually handle every loan,” he says.

“We put our hand on every loan. And if we want to look at some pricing digression, something that might be a bit out of policy … we can be very nimble and look at individual requirements. And I think that helps the brokers because we can quickly assess if there’s something a little bit outside the square – we can quickly get a sign-off on that.”

And of course this is appealing to customers too, and Sampson isn’t shy about the type of customer Bank of Sydney is aiming to attract – the 35- to 45-year-old couple with a few kids, getting ahead on their home loan and wanting to get a better deal.

To get these customers’ attention, Bank of Sydney currently offers generous incentives for choosing their home loan products. With the Expect More Loan, for example, Bank of Sydney will pre-approve a credit card for the borrower with a $5,000 limit straight away, and include a 100% offset account that’s fee-free.

“We’re there to help put people into houses,” Sampson says.

“The other thing is by funding off our own

11

Fawaz Sankari and Steve Sampson

books – we don’t go to the market for funding … so we fund off our own books – from pricing and from that perspective it’s probably a bit easier for us too.”

This point about the strength of the bank’s capital position – thanks to being owned by Bank of Beirut, Lebanon’s biggest bank – is one that Sankari also believes gives the bank an edge in the market.

“We’ve got a very strong parent and they’ve got a very strong ability to be able to send us capital whenever [we need them] to, so we’re not hamstrung around our capital where we can’t lend,” he says.

“A lot of these second-, third-tier lenders are normally constrained by that, and I think it’s a position of strength for Bank of Sydney that

we’ve got a very strong, capital-backed parent.”

Believing in brokers As far as its market competitors go, Sampson believes that where other banks are complacent, Bank of Sydney is active, and both Sampson and Sankari are forthcoming about brokers being a crucial part of their plans for the bank.

Brokers currently make up a 12% share of Bank of Sydney’s loan book, far below the 50% average of other lenders, and so it’s not surprising that this self-proclaimed “nimble” lender is expecting this figure to rise, and rise quickly.

“I think the larger banks are very complacent with brokers, and we really value them and we know that they are going to be the source of our

success, to a large degree … And I think there’s a good little niche in the market right now for a smaller player that has a good package of products that can service that broker well and build that relationship,” Sampson says.

“The biggest thing I hear about the big banks is, ‘I ring my RM and I don’t hear back for three days’. And I hear that all the time, and I never want to hear anybody say that about [us].

So we’ll always be very keen to have more of a one-on-one relationship with the brokers.”

Sankari adds: “Our strategy really is to extend the bank’s footprint …. [our] main strategy [is] to increase distribution through the third party channel.”

“We’re trying to do what we do well, and really make our mark in the market.”

12

BEST PRACTICE

WHY YOU NEED A BUSINESS PLAN Business mentor Clive Enever on the importance of making and then following through with a business plan THERE’S A great old saying that “if you fail

Where you want to go

to plan, you plan to fail”, and yet in business we often overlook one of the most basic strategic tools that can help guide a company into the future – the business plan. Whether you’re starting out, expanding, or stepping back from your business, a plan is the road map of your business endeavour. Put simply, it’s essential, and here’s why.

Business is a bit like the ultimate road trip: after you know where you are, where to next?

You might be looking to increase production, expand your product lines, gain more exposure or consolidate, and a plan will help get you there.

It helps you map out where you want to be in the future, whether that’s in one, five or 10 years’ time, allowing you to set goals and track your progress.

Where you are now

How you get there

One of the most useful things a business plan can give you is a great overview of where your business is right now and how far it is to the destination you desire. Creating your plan involves an audit of what works, what doesn’t, your financials and where you want to go. It helps reveal systems that are lacking, strategies that work, and areas where improvement can easily be made.

The key feature of the business plan is the strategies it provides. You know where you are, you know where you want to be – now what’s the best route to your desired outcome? A business plan is not just limited to auditing and dreams; it provides systems, procedures and strategies to reach your goals.

For some businesses that may be utilising technology, for others it’s a solid marketing plan

or a rethink of staffing. It could be a combination of all these factors, but the strategies are the roads you need to travel to get to your destination.

Need a navigator?

Even the best drivers could use the assistance of a navigator to get them to their destination via the most effective route possible. A great navigator will tell you whether the highway’s likely to be congested, and will have some little-known back roads and shortcuts up their sleeve.

And this is where a business coach or mentor to create or implement your plan can be a huge asset. They can assist with providing an initial outsider’s view on what works and what doesn’t in your business, help with clarifying your goals, and provide the initiatives to get you where you want to go. They can also assist with implementing these strategies, utilising their expertise to help with marketing, technology or staffing.

13

Clive Enever Clive Enever, ‘The Business Mentor’, is the founder of The Coaching Circle.

IS YOUR BUSINESS GROWING TOO FAST? Debora McLaughlin, CEO of The Renegade Leader Coaching and Consulting Group (www.TheRenegadeLeader.com), on sustaining growth Extremely rapid growth for a business might sound good, but it can be a mixed blessing.

Certainly, high growth yields greater returns, offering shareholders five times more than medium-growth companies.

Growth predicts long-term success, says Debora McLaughlin, and it matters more than margin or cost structure.

However, sustaining growth is extremely difficult. For example, a business may have tremendously high growth in the start-up phase, as did the daily-deals pioneer Groupon, which had a stellar valuation of US$6.4bn in 2010.

“By 2012, Groupon had lost a mindboggling 80% of its stock value since its initial public offering,” McLaughlin says.

“What happened? The tech company never figured out customer retention.”

While Groupon is a prominent example, it’s certainly not the only one.

Approximately 85% of super-growers – defined by McKinsey as companies whose growth is greater than 60% – are unable to maintain their growth rates, and once lost, less than a quarter are able to recapture them.

McLaughlin offers some tips for maintaining momentum to businesses that are experiencing high growth.

These include:

Define your culture You can’t afford not to invest the time to define the culture needed to support your strategic plan.

What is the purpose of your company, its guiding values, and its top priorities?

Defining the culture allows you to align senior leaders, stakeholders and investors, make faster decisions, attract top talent and engage employees.

Do your best to retain the right people Often, the problem faced by fast-growing companies is that they need to hire people fast so they fill positions based on talent versus fit and attitude. Hire people who align with your culture and its values.

Have the right mix of visionaries with executers.

Maintain the quality of your product Whatever it may be – an online service or your town’s best muffins – exponential growth can have you running in 100 different directions.

Don’t forget what got you to this point: quality. Continue to wow the customers who trusted in you at the beginning.

Make sure you have the money you think you have It’s easy to confuse growth of accounts receivables with tangible, cash-based growth. If your company isn’t collecting the cash that it’s due, there’s a risk of running into a cash crisis during growth. There’s nothing more valuable for an expanding business than cash.

“You want to manage your growth in a smart way,” McLaughlin says.

“You want growth that easily translates to profit, which means collecting data, doing the research and challenging your business instincts. Don’t be so focused on your product or service that you fail to notice the shifting sands of your consumer demands.”

14

ANALYSIS SHOULD BANKS BE FORCED TO CUT BUSINESS RATES? The market was quick to call out the major banks for not passing on August’s cash rate cut in full to mortgage holders. But what about businesses?

Australian Broker investigates the state of business lending rates at a time when business investment is stumbling

WHEN THE Reserve Bank cut the official cash rate by 25 basis points in August to a new historic low of 1.50%, it didn’t take long for the banks to react. Within minutes, Australia’s biggest home loan lender, Commonwealth Bank, had announced a 13 basis point discount off its standard variable mortgage rate (SVR). However, almost just as quickly, the banks were drawing criticism for failing to pass the cash rate cut on in full. Westpac, which reduced its home loan rates by more than any of the other majors, still kept 11 basis points of the cut for itself.

The FBAA said it was “bitterly disappointed” by the greed of the big banks.

“Banks must protect shareholders, but they also must look after their customers,” FBAA CEO Peter White said.

“It was disheartening to find [the major banks] not passing on the full reduction which most banks passed on during the last official rate reduction in May.” In response, the major banks said a difficult economic and regulatory environment had led to rising funding costs, meaning they couldn’t afford to pass on the full 25 basis point cut to customers. “… NAB’s funding costs have been steadily increasing due to a range of factors, including the need to strengthen our balance sheet,” NAB’s chief operating officer, Antony Cahill, said of the bank’s decision to cut its SVR for mortgages by 10 basis points.

Commonwealth Bank’s group executive of retail banking services, Matt Comyn, said the lender’s hands were also tied as it still needed to “provide an opportunity to the millions of Australians who rely on savings”. Like the rest of the majors, Commonwealth Bank also announced an increase to its term deposit rate for savers – something which admittedly couldn’t have been done if the full rate cut had

been passed on to mortgage holders.

But it isn’t just mortgage holders who missed out on reaping the benefits of a cash rate cut; businesses did as well. In fact, business lending rates have often been reduced by even less than mortgage rates. And with low inflation and high unemployment cited as reasons behind the RBA’s decision to cut the cash rate in August, it makes for a pertinent question.

Why the RBA cut the cash rate The June quarter inflation figures from the ABS, released just days before the RBA’s monetary policy meeting, showed that the CPI had risen just 1% through the year to June quarter 2016. This was the weakest annual rise since June quarter 1999. The RBA’s target inflation is 2–3%.

As a result, most of the market was expecting the RBA to cut the cash rate, and in its decision announced on 2 August the central bank confirmed this. “[T]he Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting,” governor Glenn Stevens said.

Driving down inflation is low wage growth and low employment growth. The ABS’s Wage Price Index for the March 2016 quarter – the figures the RBA relied upon for its August decision – showed wage growth at record lows. In the June quarter data, released two weeks after the August rate cut, wage growth remained subdued, with an increase of just 0.5% over the quarter.

Meanwhile, the unemployment rate “remains at a level consistent with there being spare capacity in the labour market”, the RBA noted in its statement on monetary policy. Further, much of the growth in employment has been

in part-time employment, which could suggest some trouble. “[T]he recent growth in part-time employment may reflect a cautious approach by firms to hiring and/or a means for them to increase their use of labour in a way that contains costs,” the RBA noted.

Business downturn The reason employment and wage growth are underperforming is that business investment is floundering. According to the Reserve Bank’s statement on monetary policy, private business investment declined further in the March quarter and fell by 13% over the year. But despite waning business investment ultimately affecting inflation, interest rates for business

15

TECHNOLOGY UPDATE

s

SUNCORP UNVEILS APPLYONLINE COMMERCIAL

Tony Carn

lending haven’t been supported by the historically low cash rate.

RBA data shows that the average outstanding small business lending rate declined by around 15 basis points over the first half of the year, before the August rate cut. By comparison, the average outstanding housing interest rate declined by around 20 basis points over the first half of the year, despite the ongoing strength of the housing market.

Speaking to Australian Broker, AMP chief economist Shane Oliver said that in an ideal world the banks should have a responsibility to pass on the full rate cut to businesses to boost investment, but the reality is that we live in a capitalist world.

“Ideally, as an economist, I’d like [the banks] to cut business lending rates, but I also recognise that they run a business; they have to decide how to price

Barely a decade ago, industry traditionalists were rejecting electronic lodgement for home loans. “Paper forever,” they proclaimed.

Today, some in the commercial loan sector still cling to that principle.

“A lot of mystique surrounds commercial loans, and inherent within that a flawed assumption persists that submissions can’t be done electronically,” says NextGen.Net sales director Tony Carn.

“Suncorp is changing this prevailing attitude by tapping into the ability for brokers to capture small business loan applications electronically via the NextGen.Net ApplyOnline system,” he says.

Carn predicts that once lenders realise how easy and efficient it is to lodge an application for a commercial loan online, the sector will follow the same road map as the residential loan space.

Last month Suncorp launched electronic lodgement for small business loan products.

Thirty per cent of Suncorp’s home loan customers are self-employed, so entering the small business space was a natural progression.

Suncorp’s national manager SME and commercial intermediaries, Robynne Frost, says the move was also about “recognising the evolution of the industry”.

“We realise it’s not about just home loans any more. It’s about brokers fulfilling customers’ needs by having the will and skill to diversify,” Frost says.

Suncorp has long been a strong supporter of the small business sector. It’s only recently, however, that the lender has become proactive in terms of working with broker partners regarding small business opportunities.

“Our ‘Small Business Masterclasses’ receive great feedback because they’re not just about offering a product. We genuinely hold our brokers’ hands and up-skill them to be able to identify opportunities and move into small business,” Frost says.

Suncorp has invested significantly in its Small Business Masterclasses, training close to a thousand brokers in the past six months on how to draw out trends and ratios and do financial analysis with small business customers.

“Which explains why we’ve got waiting lists,” declares Frost, who was instrumental in introducing the masterclasses.

Robynne Frost

Implementing the NextGen.Net ApplyOnline Small Business LIM solution was a strategic decision, which as Frost explains, delivers two benefits.

“One is for the broker; electronic lodgement delivers a better broker and customer experience through increased efficiency and capability. Before that we had a 39-page manual application, which is consistent with commercial lending.

“It will also streamline back-end processes and deliver faster turnaround times and improve functionality,” Frost says.

The majority of Suncorp’s business transactions are a combination home loan and business loan, and Frost points to “the great technology in ApplyOnline that makes that experience for the broker easier.”

“For example, they only have to punch in details once and then they can clone it,” she says.

“The other big lever is that all our brokers are comfortable with ApplyOnline, so this is another great transition for us in that we can help home loan brokers take those first steps towards a small business transaction working in a familiar system.”

Frost reports that the feedback from brokers who have embraced the change love it and have seen significant improvement in terms of time.

“One transaction came in on a Thursday and was approved by Monday. If we had to go through a 39-page application form manually, we wouldn’t have even finished looking at it by the Monday,” she maintains.

Pointing to the striking similarity between residential mortgage and small business loan applications, Carn says apart from different classifications regarding such items as security, products and income sources, “there are no surprises, which means it’s perfectly simple to do the majority of commercial applications electronically via ApplyOnline”.

“A lot of lenders sell commercial loans on typical levers based on ‘why’ – product, price and policy – and they overlook ‘how’.

“Finally it is being realised that it makes perfect sense to bring ‘how’ into the equation. Suncorp is cutting-edge in this space by shifting to efficient online technology for small business products,” Carn says.

16

ANALYSIS

their products. It is just like how I don’t think Woolworths should automatically cut prices if the price of wheat goes down,” he said.

“I would rely on competitive forces to do that, but at the end of the day I wouldn’t want to do anything which threatens the ability of these companies to survive.”

According to Oliver, the important thing to remember is that, regardless of individual bank moves, the broad direction of interest rates has been a downwards one.

“The reality is, if you look at any chart showing the relationship between the cash rate and mortgage rates or business borrowing rates over the last 20-odd years, you can see that the key group that is in charge here is the Reserve Bank.

It is not so much the reaction to each individual move,” he said.

“What really matters is the broad direction.

The cash rate has come down substantially over the last five years … and if you don’t like [your rate] you can phone your bank up and say you can go to XYZ organisation and get a much lower rate. That’s what people should do.”

In fact, Oliver said it was “dangerous” to assume that interest rates should directly correlate with the cash rate – for both business and home lending.

“I think it is incredibly dangerous to say that [the banks] have to automatically pass [cash rate cuts] on. In history, the period of automatic pass-through was a brief one … Prior to that, the relationship has been very loose. We have probably gone back to a more normal environment now.

“The environment that prevailed over 10 years to 2007 was a bit of an aberration, but it led to an expectation that all moves would be one for one.

It is not the case now.”

How to boost business investment “Obviously, if a business can borrow at a lower rate, then that over time might encourage them

TOTAL PRIVATE BUSINESS INVESTMENT

BUSINESS CREDIT GROWTH AND APPROVALS

Chain volume*

$b

Six-month annualised

%

%

New business loan approvals* 60

40

40

40

20

20

20

0

0 Business credit

0

1990

2003

*Adjusted for second-hand asset transfers between private and other sectors; reference year 2013/14

2016 Sources: ABS, RBA

to invest more and employ more people or expand their business more generally. However, it’s not as receptive [as the home loan market].

There are a lot of other factors that play a bigger role,” Oliver said.

“The most sensitive part of the economy is the home borrowing space, and businesses are a bit less receptive.

“This is because a business’s position to invest is driven by a whole bunch of things. Interest rates are one of those, but also perceptions surrounding demand for their product is another one.

“Often when business rates come down, businesses might initially be reluctant to borrow anyway because they assume interest rates have come down because the economy is weak. And if the economy is weak, they think if they do invest there might not be much demand for their products. Whereas a home borrower will just

-20

1991

1996

2001

*As a share of business credit

2006

2011

--20 2016

Sources: ABS, RBA

think, ‘Interest rates are lower so it’s cheaper for me to borrow’.”

So, how can we boost business investment – and in turn employment, wages and inflation?

Oliver said the government needs to step in and take some responsibility off the Reserve Bank.

“You really just have to provide an environment that provides confidence for investors to spend.

A stable political environment is important ...

Businesses also need to be confident that the Australian dollar will stay low, so the RBA can play a role in that.

“The government can do more by investing in infrastructure which can lower the costs that businesses face. The government can also do whatever it can to boost consumer confidence.

If consumer confidence is strong then that helps to drive final sales in the economy, which can help boost business confidence and therefore business spending,” Oliver said.

18

OPINION

JUMPING SHIP eChoice’s Blake Buchanan addresses aggregation separation, and what brokers need to consider before making the switch THERE’S LITTLE doubt that switching aggregators is becoming the new black as the playing field continues to evolve. More and more, brokers are exercising their right to opt for a fresh, new ‘marriage’ of sorts. The broker/aggregator partnership is no longer merely a transactional support mechanism but has become more of a whole-of-business proposition.

As consumer preferences have changed and brokers have diversified their service proposition, aggregators have responded with new offerings and support to facilitate these changes.

This is why we are seeing the continued evolution

position than now to exercise this choice, and yet with so many brokers making the switch, one aspect that hasn’t received much airtime is the issue of separation letters, and what brokers should know about them if they’re looking to make a change in a bid for a better future.

The fine print: a necessary evil From the onset, it’s important to note that separation letters are a necessary part of both an aggregator’s and a broker’s business management program. In its basic form, a broker’s aggregation agreement outlines the terms and criteria under

With so many opportunities now on offer in the current competitive aggregator landscape, brokers need to take the time to be aware of what their current agreement entails – and if they’re not sure, it’s time for a review of aggregation as a sector. Brokers now have a deeper choice in relation to their preferred partners and have the luxury of choosing aggregators who are intrinsically aligned with their thinking, their business goals and technology requirements – with their customer needs at the forefront of their decisions. Brokers have never been in a better

which the business relationship will work, as well as the circumstances under which brokers can ‘separate’ from their aggregators.

Simply put, as you walk out the door destined for greener pastures, a signed separation letter is a must – otherwise it’s a little like planning to marry someone else without getting legally divorced first.

In other words, the new marriage can’t go ahead until the separation is officially acknowledged.

Therefore, with so many opportunities now on offer in the current competitive aggregator landscape, brokers need to take the time to be aware of what their current agreement entails – and if they’re not sure, it’s time for a review.

New brokers shopping around for an aggregator to kick-start their professional careers should take the time before signing on the dotted line to look at everything an aggregator can offer – and how that service can support you in the way you want to shape your business.

These brokers need to understand that the key differentiator now goes well beyond just commission structures. These days diversified finance and lifestyle-related product offerings; sophisticated, time-saving technology; dedicated, specialist people support and professional development opportunities are each playing their own role in contributing to a broker’s final decision, and ultimately their success. Yet for experienced brokers already in an arrangement, they’re weighing up so much more. Because they’re benchmarking their existing arrangement against the rest, they really need to do their research around what they are leaving, and what they potentially have to gain.

A mutual understanding We know the aggregation sector as a whole continues to do a great job. However, as a largely self-regulated collective, we also hold the balance of power when it comes to deciding a broker’s ability

19

Blake Buchanan Blake Buchanan is the general manager of aggregation at eChoice

COMMERCIAL LENDING UPDATE

PRIVATE LENDERS EMERGE AS NATION’S ‘FIFTH BANK’ Entrepreneurial private lenders like Chifley Securities have been quick to seize new market opportunities in 2016, and are convincing brokers they could be Australia’s ‘fifth bank’

to continue working in the field, which is why the terms of the agreement should therefore be very clear to both parties from the onset.

So now, with a variety of interesting situations becoming increasingly apparent as more brokers switch and recent examples reiterate the importance of understanding separation from your current aggregator, I’m prompted to highlight some tips to follow, in order to avoid any commercial interruptions to your business and your income:

1

Review the general arrangements of the agreement and all your obligations so that you are in a controlled position to fulfil your responsibilities.

2

Read the fine print in any clauses. Some will be specific to brokers who are sole operators; others may be tied to the broader activities of the broker’s group.

3

Ensure you understand under what conditions any commissions may not be paid if you decide to leave.

4

Finally, if you need specific legal support to identify some of the areas you’re not still sure about, seek an independent legal opinion so you’re more aware and comfortable with the document.

If a broker has been refused a separation letter, they should then request in writing the reasons why and where they feel that the conditions are unreasonable, and they should always speak to their industry body (MFAA/FBAA).

Industry bodies can add value here in an area that is largely subjective in relation to process or uniformity, outside of going to the expense of legal representation. The broker should also consult with their prospective aggregator to see what assistance they can provide.

As our industry progressively redefines the financial services marketplace, the overriding take-home is that change is good and the future for brokers is exciting.

However, brokers need to make it their business to understand every aspect of their business, so that when they look to change aggregator, they can enter into the new relationship knowing they will be able to enjoy the honeymoon and beyond.

It was an impressive close to the 2015/16 financial year for Chifley Securities.

Despite launching into the broker channel just 20 months ago, the non-bank finance group was able to assist investors and builder and developer clients with a total of $600m worth of commercial and residential development finance from its total capital pool of $1.1bn.

But Chifley Securities isn’t alone.

When combined with the finance being channelled by the rest of the private lending market, it’s a sector looking a lot like Australia’s fifth bank.

“Private lending groups, including Chifley Securities, are becoming known as the fifth major bank,” says director Joe Morello. “At a time when banks have been cutting back on lending, private lenders have been stepping into the gap.

A lot of deals are now coming to private lenders that, not long ago, would have been going to the major banks.”

Until recently, private lending existed outside the mainstream. But with so much smart private capital now hunting competitive returns, Morello says professional private lenders have been able to move from major bank understudies to centre-stage lending roles.

“Private lenders have always been there, and brokers have used them when their clients needed to execute quality deals with a more innovative and flexible approach. But private lenders have now moved from being outside the circle to a more accepted pillar of the lending market. Together, we are not dissimilar from a new, fifth mainstream lender.”

A fifth pillar Chifley Securities’ loan book of projects in progress is worth $230m, with loans valued between $1m and $50m supplied for first mortgages, mezzanine, bridging and construction finance. Morello says demand has been strong from commercial and residential property developers who do not meet tighter major bank presales and security requirements.

“We are fulfilling a demand from developers that are not meeting the banks’ latest demands for higher presales, especially where the majority of buyers have been foreign,” Morello says. “We are able to provide finance for presales guarantees of 65% of total sales, in contrast to banks that are squeezing projects with a strong foreign sales component.”

The role of private lenders in similar deals is likely to increase. Morello says

Joe Morello

there has been a surge of private equity, hedge and superannuation funds chasing higher returns of more than 10% by providing funds in property finance through non-banks like Chifley Securities.

“We are continuing to see strong interest in our local market, including from overseas sources, such as US-based private equity firms. We have been able to help more high-net-worth groups and families, for example, find a home for money that will deliver them better returns.”

The situation points to the emergence of a ‘fifth bank’.

“As long as interest rates are low, we will see investors willing to commit funds to quality property development deals.

On the customer side of the equation, clients left stranded by the caution of APRA-regulated institutions will continue to knock on our door. And that is good for us,” Morello says.

Channel of choice Brokers have been pragmatic in placing non-bank finance groups like Chifley Securities right alongside mainstream lenders in their discussions with clients, thanks to the approach being taken by these willing lenders to establish and maintain real, two-way broker relationships.

Morello says the lender’s success with brokers has come down to giving them what they want, when they want it, including fast, transparent and informed decisions on deals, ultra-responsive client finance, and 1% broker commission upon settlement.

“Brokers need options when mainstream lenders tighten the purse strings, and our 2015/16 financial year success shows brokers are seeing us as a genuine partner. Brokers have been wanting a ‘fifth bank’ for some time, and in our market at least, now they have one.”

20

COMMERCIAL OFFSHORE BUYERS DOMINATE CBD SALES Foreign investors make up more than two thirds of Australian CBD commercial real estate purchases, a new survey has revealed

REAL ESTATE provider Savills Australia’s latest research has shown that foreign investors made 48% of all Australian office purchases in the 12 months to June 2016, and a massive 68% of office purchases in the nation’s central business districts.

Value-wise, foreign investors accounted for $8.6bn of the total commercial sales and $6.6bn of CBD sales from 44 transactions.

The total value of non-CBD office purchases by foreign investors was $1.9bn.

All up, the investor market as a whole splashed out nearly $18bn on Australian office property, both in the CBDs and metropolitan areas, marking a 35% increase on the five-year average.

The $17.9bn total, comprising $9.8bn worth of CBD office transactions and $8.1bn worth of non-CBD transactions, was up $4.6bn on the $13.3bn, five-year average with the sale of 253 properties, and also up on the five-year average of 234.

Sydney had the most transactions by value at $4.6bn, or 47% of CBD office sales nationally, while Melbourne had the greatest number of transactions at 28.

According to Savills national head of research Tony Crabb, with the exception of 2012, the 12 months to June represent the seventh consecutive year that Australian office sales has seen year-on-year increases.

“This has been an extraordinary run which is unprecedented locaIly, and there is no reason to believe we won’t see the upward trend continue given the current global economic and political status quo,’ Crabb said.

Market yields in the CBD averaged between 6.15% and 8.3%, according to Crabb.

Savills’ director of cross border investments and capital transactions, Ben Azar, said Australia would continue to see massive foreign investment.

“In an extremely low interest rate environment with global capital starved for yield, Australia is seen as a transparent secure market with some of the highest yields in the world. Sydney and Melbourne, especially, are seen as global gateway cities offering very good lease terms and strong covenants.

“As long as Australia’s economic and political environment remains stable, any turbulence in the US, UK and Europe will mean more offshore capital will be attracted to Australia because of its safe haven status, transparent market practices and growth potential,” Azar said.

He added that while Sydney and Melbourne remained the most favoured investment destinations, other Australian centres would increasingly attract attention.

“We are definitely seeing a rise in offshore interest in cities like Brisbane, Adelaide and Perth as investors chase yield, and metro markets in Sydney and Melbourne are also in demand for the same reason,” he said.

Azar said rapidly improving leasing fundamentals, especially in Sydney, meant the income side was set for vast improvement, allowing scope for more aggressive pricing from vendors and potentially driving further investment demand.

RECKON MEETS PROSPA IN ONLINE SME LENDING PUSH Business accounting software company ASX-listed Reckon has entered into a partnership with leading online SME lender Prospa to offer its small business customers online business loans.

The partnership offers businesses greater flexibility and the ability to access the working capital they need to manage cash flow and grow their businesses, according to Reckon.

“Fintech disruption has changed the business lending game, with online entrants challenging the traditional providers of bank finance by introducing new cash flow financing options for SMEs. “Data from accounting software used to evaluate cash flow is seen as the best measure of business fundamentals, helping to determine the business’s ability to repay and manage risk during the life of a loan,” Reckon CEO Clive Rabie said.

The demand for small business finance is expected to drive growth in online lending, as business owners are attracted to the lack of requirement for property security, the simple application process and fast funding.

Reckon customers can apply for an unsecured Reckon Loan of between $5,000 and $250,000 via a simple online application, and the health of the business is analysed to determine creditworthiness using a proprietary technology platform. The application is assessed by Prospa as the finance provider, which facilitates the application and decision process, and customers can usually get access to funds the next business day.

Loan terms range between three and 12 months, with daily and weekly payment options available.

The partnership with Prospa was a logical next step for Reckon, according to Rabie.

“Our partnership with Prospa was a logical choice to power our small business lending. They are the market leader and have the experience and capability to deliver,” he said.

Prospa joint CEO Beau Bertoli said the lender was excited to collaborate with Reckon to provide customers with timely financial solutions from their trusted accounting partner where traditional finance options often fell short.

“At Prospa, we work with high-quality partners that share our values; we put customers at the centre of everything we do,” Bertoli said.

Since 2011, Prospa has funded more than $150m small business loans and the company has a 95% customer satisfaction score among its customers.

The future of Reckon Loans will see the loan application process directly integrated into the company’s accounting software, according to Reckon.

21

FOREIGNERS CAN’T GET ENOUGH OF AUSSIE OFFICES

FAST FACT

Foreign investor

48%

Government

3%

Syndicate

4%

Developer

5%

Owner-occupier

1%

Private investor

Undisclosed

9%

1%

Trust

Fund

11%

18% Australian office property sales ($m) Jun-06 to Jun-16 $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 JUN-06

JUN-07

JUN-08 JUN-09

JUN-10

JUN-11

JUN-12

JUN-13

2.8%

Business confidence in Australia dropped

Australian office property buyer profile (%) 12 months to Jun-16

JUN-14

JUN-15

JUN-16 Source: Savills Research

in July to 116.1, just below the 6-year average

Source: Roy Morgan

COMMERCIAL INVESTORS EYE SYDNEY’S SOUTH Investors are currently targeting Sydney’s south for strategic commercial investment opportunities, according to Stephen Grant of CBRE’s South Sydney Capital Markets.

Suburbs including Botany, Mascot, Waterloo, Zetland and Alexandria are experiencing strong development and growth potential and are continuing to witness high levels of buyer demand, the developer has stated, with CBRE having recently negotiating a series of investment transactions over the past 12 months.

South Sydney investment assets are currently very coveted, Grant said, particularly given the high number of recent residential conversions which have tightened the supply pipeline.

Demonstrating the trend, CBRE Research recently indicated that Sydney industrial withdrawals and subsequent conversions are currently focused on the South Sydney area – with over 60,000sqm of stock expected to be withdrawn in the area throughout 2016.

“Warehouses are a good candidate for residential conversion as they typically occupy a sufficient amount of space and are relatively simple to demolish. The increasing numbers of withdrawals, with almost 260,000sqm expected to be withdrawn by 2020, is placing heightened pressure on supply and subsequently increasing demand,” said Grant.

Future development potential has emerged as another key motivator for investors when acquiring sites in South Sydney, Grant said, adding that buyers were willing to pay premium prices to secure strategically located sites with long-term upside.

“Aside from future development potential, commercial assets offering long-term leases to desirable tenants are incredibly coveted – with investors needing to be competitive to secure these sites.”

The recent growth of the South Sydney area, with projects including the Green Square Town Centre, is further driving investor demand and underpinning a series of competitive sales recently witnessed in the area.

“Despite limited supply and tightening lending conditions, investors continue to have confidence in the long-term potential of South Sydney – which is making the current environment the ideal time for vendors to bring investment assets to the market to benefit from high returns,” concluded Grant.

22

MARKET WRAP

HOME LOANS JUMP IN JUNE The ABS has released its latest housing data, which shows home loan demand increased in June HOME LOAN DEMAND bounced back in June, recording a jump of 1.2% in the number of new mortgages written throughout the month.

According to data released by the ABS, 57,609 home loans were written in June, up from 56,945 in May. The rebound in demand is likely linked to the Reserve Bank’s cash rate cut announced in May, said Mortgage Choice CEO John Flavell.

“In May, the Reserve Bank of Australia made the decision to trim the official cash rate by 25 basis points. This rate cut was then filtered down to borrowers and potential property buyers by way of lower home loan interest rates.

“These rate cuts helped make the cost of borrowing more affordable than ever – which is something Australians were acutely aware of.”

The ABS data shows that more than 49,000

home loans were approved for the purchase of established dwellings, up 1% from May. Demand for new properties also rose, with the number of loans written up 2.7% to 2,739.

The Housing Industry Association (HIA) has also reported that in June 2016 the number of loans to owner-occupiers for dwelling construction rose by 2.1% in seasonally adjusted terms.

More than $32bn worth of home loans were approved during the month of June, up 2.3% from May. Of these, $11.78bn were investment loans – a 3.2% increase compared to May. Owner-occupier loans also increased over the month, with the $20.79bn written in June representing a 2.5% increase from May. “Almost $12bn in investment loans were written, while the value of all owner-occupied loans surpassed $20bn,” Flavell said.

HIA senior economist Shane Garrett stated that despite the uncertainty surrounding the federal election campaign, the low interest rate environment proved too irresistible to buyers in June.

“Encouragingly, prospective homebuyers seem to have taken advantage of the lower interest rate environment, as evidenced by [the] positive results for new home lending,” he said.

“June was also dominated by the close federal election campaign, which was the source of some uncertainty across the economy. [This] data indicates that the benefits of lower interest rates trumped any reluctance by buyers to enter the market during the tight election race. It’s therefore likely that last week’s interest rate cut will help bolster activity on the new home building side,” concluded Garrett.

INVESTMENT LOANS ON THE UP

$35,000,000 35.85%

$20,000,000 $15,000,000 $10,000,000

Owner-occupation (secured finance) – Construction of dwellings Owner-occupation (secured finance) – Refinancing of estab. dwellings Investment housing – Construction of dwellings for rent and resale Investment housing – Purchase for rent or resale by others

Owner-occupation (secured finance) – Purchase of new dwellings Owner-occupation (secured finance) – Purchase of other established dwellings Owner-occupation (secured finance) – Construction of dwellings % Investment housing

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

May-2016

Mar-2016

Jan-2016

Nov-2015

Sept-2015

Jul-2015

May-2015

Mar-2015

Jan-2015

Nov-2014

Sept-2014

Jul-2014

May-2014

Mar-2014

Jan-2014

Nov-2013

Sept-2013

Jul-2013

May-2013

Mar-2013

Jan-2013

Nov-2012

Sept-2012

Jul-2012

May-2012

$0

Mar-2012

$5,000,000 Jan-2012

$’000

$30,000,000 $25,000,000

% Investment loans

The proportion of loans for investment purposes rose in the months to June 2016, and was 35.85% of all home loans:

Source: Digital Finance Analytics

23

SOFTER MARKET PREDICTED FOR 2017

FOREIGN INVESTORS FAVOUR APARTMENTS UNDER $500K

Composition of properties in Australia bought by foreigners in Q2 2016

29% houses

While it’s currently a ‘mixed picture’ for house prices across Australia, NAB is predicting values to be flat across most capital cities in 2017

NAB’S RESIDENTIAL Property Survey for Q2 2016, of approximately 230 property professionals, has shown that property prices and forecasts vary from seaboard to seaboard.

“It’s still a mixed picture across Australia, with house price expectations for the next 12 months holding up well in the eastern states whilst staying flat in SA/NT and continuing to fall sharply in WA,” said NAB chief economist Alan Oster.

NAB Economics has also revised its national house price forecasts for 2016 upwards to 5.1% (from 1.5%). Unit price forecasts were revised up to 3.6% (from -1%) for 2016.

“Our upwards revisions in price forecasts reflects the strength in prices to date. Over the last six months, Sydney and Melbourne prices have increased by an annualised rate of nearly 19% and 12% respectively,” Oster said.

“However, while there is significant amount of uncertainty over the outlook for prices, we expect that this renewed momentum in the housing market is unlikely to be sustained over the longer term.”

As for the rest of Australia beyond 2016, NAB Economics forecasts that prices will be flat across most capital cities, with falls particularly in Perth, Melbourne and Brisbane, the drop in the latter two capital cities being attributed to added supply and weaker investor demand.

“NAB is forecasting a much softer residential

property market, with 0.5% growth in house prices and nearly 2% decline in unit prices in 2017,” Oster said.

NAB Economics continues to hold the view that residential property prices are unlikely to experience a sharp ‘correction’ without a trigger from a shock that leaves unemployment or interest rates sharply higher.

The Residential Property Survey series also revealed that the market share of foreign buyers in new Australian housing markets fell for the third straight quarter in a row in Q2 – to 10.4%. A sharp fall in foreign buyer activity in Queensland was offset by growth in Victoria and a modest rise in NSW. Market share of foreign buyers in established markets was unchanged at 7.2%.

First home buyers accounted for one in three purchases of new properties, and 29% of established homes in Q2, according to the NAB Residential Property Survey. First home buyer investors, however, were less prominent in both markets.

Tight credit, lack of housing affordability, and construction costs are the main constraints to new housing development, while employment security, access to credit and price levels are the biggest impediments to buying an existing property in Australia, NAB reported.

According to research conducted by CoreLogic, property values rose 0.5% across the combined capital cities over the month of June.

18%

53%

redevelopment

apartments

Value of properties purchased by foreigners

Apartments

35%

39.4%

<$500,000

$500,000–$1m

Houses

30%

<$500,000

36.4%

$500,000–$1m Source: NAB

24

MARKET WRAP NEW HOMES IN DEMAND ON EASTERN SEABOARD

Increase in number of loans to owner-occupiers constructing or purchasing new homes, June 2015â&#x20AC;&#x201C;June 2016

+4.3% Queensland

-17.7%

Northern Territory

-20.7%

+10.8%

Western Australia

New South Wales

0%

Approx.

ACT

0%

Approx.

South Australia

+19.1% Victoria

-3.5% Tasmania

Source: HIA

26

TECH FOCUS SMALL BANKS’ CUSTOMERS THE MOST TECH-SAVVY

BROKERS TO BENEFIT FROM FINTECH

A marketplace SME lender believes Australian brokers are in a unique position to benefit from the growing fintech market MARKETPLACE SME lender FundX says forward-thinking Australian brokers are in a much better position than other financial services professionals when it comes to the rapidly growing fintech market.

Brokers can offer clients extra value via fintech products and services, and many fintechs rely on brokers as an important referral channel, FundX CEO and founder David Jackson has said.

Brokers who leverage this relationship instead of resisting it, he added, may be poised to benefit most from the fintech revolution.

“At its core, finance broking is based on deep personal relationships developed over years of providing trusted and personalised information and advice,” Jackson said.

“The business models of many fintechs, on the other hand, rely on rapid and inexpensive scaling of sophisticated tech offerings – except their founders often don’t possess the extensive customer base many brokers possess.

“What this means is that savvy brokers could consider forming commercially lucrative partnerships with fintechs in order to access value-adds for their customers, such as realtime indicative loan rate quotes, productivity

tools, predictive analytics, neural networks and fast-learning algorithms, to name just a few.

“This will position them as innovative, forward-thinking, and best of breed, strongly assisting in acquiring and retaining customers through improved customer experience and choice.

“In return, fintechs will benefit from the exposure to the brokers’ network of customers – making the two quite a natural fit.”

FBAA CEO Peter White has also urged brokers to begin adapting to the new opportunities in financial services sooner rather than later.

“In the coming generations, we will see a fundamental and permanent shift away from the way we do lending today,” White said.

“At the moment the impact is minimal, but this is likely to change very quickly, meaning brokers will need to adapt and move with the times, or risk being left in the wake of other more progressive playvers.

“My advice to brokers who don’t wish to be left behind is to move with the times and innovate, ensure your technology is leading-edge, get good advice in this field, and be ready to push the boundaries. Innovation will absolutely be key.”

TEACHERS MUTUAL LEADS THE WAY Technology early adopters Index = 100 Average = 18.7%

Below average

Above average Teachers Mutual 156 ING DIRECT 141 Citibank 134 St.George 119 ME 116 Bankwest 110 Westpac 108 ANZ 107 CBA 107 Macquarie 105 Suncorp 102

Base: Australians 14+

NAB 97 BoQ 97

20

40

Bank SA 87 Heritage Bank 77 Bendigo Bank 67 60 80

100

120

140

160

180

Source: Roy Morgan Research – Single Source, Mar 2015–Feb 2016

The rapid changes in how customers now deal with their banks, through mobiles, the internet and fintechs, pose a major challenge to existing banks, according to Roy Morgan’s latest Single Source survey.

In the survey of 50,000 people, the research company found that just under one in five Australians (18.7%) can be classified as ‘technology early adopters’ – those people that are “always first to purchase and use new technologies and generally set the trend for the broader market to follow”.

This market segment is likely to be critical to the success of banks in the new digital environment, and it is therefore crucial for banks to understand how they are performing in this sector, the Roy Morgan report stated.

“The success of all players in financial services will not only depend on their ability to attract early adopters but will depend ultimately on moving to the ‘mass market’ stage and ‘market maturity’, where the majority of the population have transitioned to this new era in banking,” said Roy Morgan Research industry communications director Norman Morris.

Findings from the survey show that there are major differences in the proportion of each bank’s customers who belong to the technology early adopter segment, which is likely to impact on their success rate in entering the new digital financial world.

The six banks with the highest proportions of early adopters within their customer base are all of the smaller or regional banks. Teachers Mutual Bank leads with 29.2% of its customers being from this group, which is 56% higher than the population average of 18.7%.

The other two strongest performers are ING DIRECT (41% higher than average) and Citibank (34% higher).

Of the four major banks, Westpac (8% above average), followed by ANZ and CBA (both 7% higher than average), are the best performers. NAB is 3% lower than average.

Among the other major banks there are a number of below-average performers, with Bendigo Bank well below average (33% below), Heritage Bank (23% below) and Bank SA (13% below).

“Although the smaller banks currently appear to be leading in attracting customers from the technology early adopter segment, they are likely to face challenges from the better resourced big four and the new fintech disrupters who are likely to be more nimble and experienced at adapting quickly to customer needs, thus posing a potential problem for all banks,” Morris said.

27

CONSUMER INSIGHTS FINANCIAL WOES ACROSS THE BOARD A new survey has shown that Gen X and Gen Y are doing it tougher financially than their parents did, but another report has revealed that baby boomers are the generation most concerned about finances and debt

A SURVEY conducted by ME has revealed that Gen X and Gen Y have it harder financially than their parents did when it comes to achieving key life milestones.

When all respondents were asked to rate the challenges they experienced in achieving 10 different life milestones, the younger generations reported greater financial challenges than the older generations (baby boomers) across nine of the 10 milestones.

Generations X and Y nominated ‘starting their own business’, ‘buying their first home’ and ‘raising a family’ as their top challenges, while older generations nominated ‘starting their own business’ as well as ‘having money left over for holidays and luxuries’ and ‘making ends meet’ as their top challenges.

ME’s head of deposits and transactional banking, Nic Emery, stated that the new findings clarified an ongoing debate around generational financial hardship.

“There’s often debate about whether younger generations are struggling compared to their older compatriots, and these findings support the argument that they are experiencing greater financial challenges,” he said.

“As a bank we see firsthand how hard it is for younger people, particularly for Gen Ys buying a first home, when average house prices are seven times the average income today compared to three times thirty years ago.”

However, Emery did not address the fact that these record-high prices are supported by record-low interest rates, and another recent study by ME on household debt has clearly shown that the financial comfort of the baby boomer generation has fallen the most of any generation, including Gen Y, in 2016.

Baby boomers reported greater perceived

GEN X AND Y DOING IT TOUGH?

% who said each milestone was difficult for them to achieve 72%

59%

Starting your own business

71%

56%

Buying your first home

Gen X and Gen Y

68%

55%

Raising a family

68%

62%

64%

52%

Having money Having the left over for opportunity holidays and to earn a other luxuries decent income

Baby boomers and builders

stress with ‘income’, ‘cash savings’ and ‘net wealth’ in the past six months to June 2016, despite continued gains in actual income and net wealth across households on average.

Baby boomers also reported greater worries about the ‘cost of necessities’ and the ‘ability to maintain lifestyle in retirement’, as well as the ‘level of government assistance available’ and the ‘impact of legislative change on their financial situation’.

The ME survey of 1,000 Australian adults also found that women are finding it harder to cope financially than men. Nearly three quarters (73%) of women said they found it difficult to start their own business – 11 points higher than men – and 63% said earning a decent income was difficult, compared to just 53% of men.

While this new survey suggests Gen Y is struggling financially due to no fault of their

63% 59%

Making ends meet

62% 44%

Getting a decent job (secure and reasonable wage)

56% 38%

Finding a suitable house to rent

49% 46%

46%46%

Being able to afford basic necessities

Acquiring a tertiary education or other qualification Source: ME

own, ME’s Household Financial Comfort Report also indicates that life milestones and good money habits take a back seat to travel pursuits among Gen Ys. As at July 2016, 76% of surveyed Gen Ys indicated they’d delay ‘settling down’ to travel overseas. Even though 79% of overseas travellers said ‘they’ve travelled more than their parents did’, the majority (88%) said they ‘would like to travel more frequently’ and 78% said they would ‘never stop travelling’.

ME’s findings also indicate that the nature of travel invites overspending, with 55% of overseas travellers surveyed failing to make or follow a holiday budget. Forty per cent of overseas travellers are financially worse off after an overseas holiday, despite many diligently saving for the occasion (82%), the survey showed.

28

PEOPLE TAKING A STAND (WITH WRISTBANDS) WA broker Rose de Rossi recently became an advocate for a nationwide campaign to stop school bullying in its tracks ‘YOU CAN SIT WITH ME’ CAMPAIGN

Founded in 2015 by educational consultant Sophie Whitehouse, who has been teaching for over 25 years Students wear bright yellow YOU CAN SIT WITH ME wristbands so fellow students know they are a safe person to sit with and will make them feel welcome Proceeds go to the campaign’s partner, the Australian Numeracy and Literacy Foundation, which helps further improve the education of Aboriginal and refugee communities

STUDIES HAVE shown that one in four students aged between eight and 14 years experience bullying every few weeks or more, and a global survey across 40 countries has revealed that Australian primary schools are among those with the highest reported incidence of bullying.

This is why Rose de Rossi, mortgage industry veteran and co-founder of Western Australian brokerage Diversifi, recently became the first advocate in the state for anti-bullying campaign YOU CAN SIT WITH ME. The national campaign, which was founded last year by educational consultant Sophie Whitehouse, involves students in schools wearing yellow wristbands printed with the phrase, ‘You can sit with me’. As the words suggest, kids who have been bullied, are new or feel lonely know that they can approach any other student wearing a wristband and be warmly welcomed into their circle, without fear of being turned away or left out.

“If they look for someone that’s wearing this yellow band, they know that’s a safe person and that they can sit with them and it’s a friend to have at the school,” says de Rossi.

She explains that the yellow bands are a privilege to wear and have to be earned by students, often via their schools’ development or mentor programs.

With a son who was regularly bullied throughout his school years, de Rossi knows all too well the impact bullying has on children and teenagers.

“It’s affected me personally because my son was bullied a lot through school and we had to change schools,” says de Rossi.

“It was very traumatic and I know how lonely kids can get at school, so when I saw [the campaign] I thought, ‘This is just perfect!’ … If [my son had] had someone that he’d felt safe with that he could

“I know how lonely kids can get at school, so when I saw [the campaign] I thought, ‘This is just perfect!” actually go sit with and just eat his lunch, it may have made all the difference in his school life.”

Individuals can purchase the wristbands online at the YOU CAN SIT WITH ME website for $2 each, and community and groups can purchase them in bulk.

The funds go towards a national literacy program and so they help schools in more ways than one, says de Rossi, and clubs and communities have rapidly embraced the kindness campaign throughout Australia.

“There’s about 160 schools and community groups nationally that are actually participating already.”

Next month de Rossi and Whitehouse will also approach schools in WA and the local media to raise awareness of the campaign against bullying and spread the word on the “simple wristband with a life-changing message”, as they have aptly put it.

Community champion As a testament to her heavy involvement not just in the local community but also in the broking community itself, this year de Rossi was named the winner of the 2016 MFAA Community Champion Award. She is also chair of the MFAA Perth Forum, chair of the broker focus group for WA members, and mentors other brokers in her spare time.

She was the initiator of a WA Facebook page for MFAA members that now has 309 local members, and the other states have since followed suit with their own pages.

“It’s a great way to interact with regional brokers that can’t come to our meetings,” says de Rossi.

“I believe in sharing experiences and sharing business practices. There’s enough business for everybody and everyone is doing something different – we can all learn from each other.”

Although you wouldn’t know it looking at her list of achievements and particularly at the success of her brokerage, de Rossi only branched into broking in 2009. After 14 years in banking, she joined Choice Home Loans and launched Diversifi in North Perth with business partner and fellow director Tracey Lea Gilbert. The team is now 14 strong.

“I have a really good business partner,” de Rossi says. “She allows me to spend all this time volunteering to do things because in the end I’m very passionate about the industry.”

Diversifi recently became the first WA broking company to partner with Moving Hub and embrace its forward-thinking white label CRM platform, allowing clients electronic access to arrange transferring utilities, insurance and other services during the home-moving process.

29

CAUGHT ON CAMERA On 3 August 2016 Australian Brokerâ&#x20AC;&#x2122;s sister publication, Mortgage Professional Australia (MPA), hosted the live-streamed 2016 interactive Aggregator Roundtable.

On the panel was Stephen Moore from Choice Aggregation, Tanya Sale from Outsource Financial, Tim Brown from Vow Financial, Brendan Wright from FAST, and Jaci Smith from My Local Broker. The hour-long roundtable, hosted by MPA editor Sam Richardson, involved discussions on the current state of the mortgage industry, and concluded with questions for the panel that were sent in live via text message from viewers watching online.

30

PEOPLE HOT SEAT

NELSON BEDOYA Award-winning Loan Market broker Nelson Bedoya, on turning mistakes into opportunities and why brokers should care about digital marketing

What is your most rewarding client experience?

I started my company on the reflection that if someone had A given my parents the advice and knowledge of what to do with their home and hard-earned income, then their situation may have been in a better position today.

Working with my clients and having the capacity to create a financial light bulb moment is the most satisfying aspect of what I do. There is nothing more rewarding than opening my clients’ eyes to opportunities that they thought were not possible. In my opinion there is nothing that comes close to adding value to someone’s life, and I’m humbled to be in a position to do so.

Q

What do you think will be the biggest innovation in the mortgage industry in 2016?

Digital marketing and the acquiring of clients online will be A the biggest opportunity. I think the days of print media are numbered, with more people turning to their phones, tablets and computers for information.

On top of this, the rise of social media and its importance in today’s society is bigger than ever.

Everyone is always looking at some form of social media, so it has become really important to have some sort of presence on the digital scene to avoid being left behind.

Q

If you were the head of the MFAA or FBAA, what would be your first priority?

My first priority would be to ensure that we do not A lose the excellence and spirit of our industry.

As our industry becomes more regulated in light of APRA and ASIC intervention, it would be important to protect brokers who strive to create and achieve a high level of industry standard.

Q

What is the most memorable piece of advice you have received in your life?

“Do not let your past define your future.” The beauty A of life is that from every experience and error you make comes an opportunity to learn and apply it to your next decision or journey, to ensure that you do not repeat the same mistakes.

When I first got into broking I must admit I had a lot to learn and had my fair share of mistakes, but not letting these mistakes discourage me from being where I wanted to be was instrumental in me getting to where I am.

Q

If you could have one superpower, what would it be and why?

Superhuman endurance. I would love to be fitter, A but I struggle to get to the gym as much as I would like to.

With superhuman endurance, I could do and eat what I wanted and when I wanted, but not have to worry about packing on the weight, while still enjoying my sport and work.

Q

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