Australian Broker 14.02

NEWS Banking industry not a risk – APRA Countercyclical capital buffer to stay at 0% P6

OPINION Are we really in a housing bubble?

How changing interest rates may not be the answer P12

COMMERCIAL Foreigners dominate commercial sales Australia still seen as a safe haven P16

JANUARY 2017 ISSUE 14.2

A BIG DEAL When the stakes are high

One broker’s most memorable deal and how he made it happen P18

TECH FOCUS Fintech market to dwindle?

High costs of funding will force start-ups to merge or fold P22

LOUISA SANGHERA Zippy Finance’s founder on how she used business networking to create one of Northern Sydney’s most well-known brands P10

MARKET WRAP 2017: The year of meagre house price growth

New data shows a drop in property demand P24

AGGREGATOR SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

LENDERS

FBAA says superfunded property a “gimmick” P4

APRA: Banking industry not a risk P6

ANZ overhauls staff bonus structure P8

BROKERNEWS.COM.AU

AGGREGATOR LOAN VOLUME HITS $15BN

EDITORIAL

AFG mortgages lodged

Editor Madelin Tomelty

Fiscal year

Fiscal quarter

Lodge no.

Lodge volume

Avg loan

Inv %

First home buyers %

Refinance %

Upgrader %

2015

1

28,134

$12,204,892,149

$433,813

39%

8%

34%

31%

2015

2

28,664

$12,890,718,175

$449,718

39%

7%

36%

30%

2015

3

27,497

$12,268,066,204

$446,160

40%

8%

35%

30%

2015

4

31,231

$14,355,977,655

$459,671

40%

8%

37%

28%

2016

1

29,920

$14,074,024,978

$470,389

33%

9%

36%

34%

2016

2

28,853

$13,707,580,625

$475,083

31%

7%

38%

35%

2016

3

27,279

$12,898,759,815

$472,846

33%

8%

38%

33%

2016

4

30,371

$14,493,261,266

$477,207

34%

7%

39%

32%

2017

1

31,593

$15,136,246,232

$479,101

32%

8%

38%

34%

2017

2

30,817

$15,065,649,900

$488,675

34%

9%

38%

32% Source: AFG

Overall, non-majors made up 34.7% of total market share – the highest figure since before 2013 – driven by increased fixed and variable rates as well as tighter lending for investors. “This has encouraged consumers to examine their own situation and we are seeing many pick up the phone to their mortgage broker to determine if their loan is still the most appropriate for their circumstances,” Bailey said.

A greater level of competition in the marketplace was driving this trend, Bailey told Australian Broker, especially with the nonmajors “stepping up their game” when it comes to attracting business. “We expect this trend to continue into the new calendar year as an increasing number of consumers recognise that a mortgage broker is in the unique position of being able to provide a comprehensive view of the alternatives available across lenders and products,” he said.

Journalist Maya Breen Production Editor Roslyn Meredith

ART & PRODUCTION Design Manager Daniel Williams Designer Martin Cosme Traffic Coordinator Freya Demegilio

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 Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

AFG SEES INCREASE IN LODGEMENTS The nation’s biggest aggregator, AFG, has released the AFG Mortgage Index for the final quarter of 2016, showing lodgement volume growth of 9.9% year-on-year. But according to COO David Bailey, the stateby-state figures show two very different Australias.

While Victoria leads the pack with an increase of 23% for the year, Queensland rebounded with 18% growth in the same time period. NSW came in third place with a 10% increase in lodgements.

However, the rest of the country tells a different story, Bailey said.

“South Australia remained flat across 2016 and the tough time experienced by the WA economy was evident with a 16% drop for the year. The Northern Territory also showed a drop of 18% across the year.”

In what is a promising result, however, the major banks dropped market share across all sectors in the fourth quarter of 2016.

News Editor Miklos Bolza

SALES & MARKETING

Whether this would be an ongoing trend depended on bank pricing and the cost of funds in the marketplace, he added. “I’d like to see higher levels of competition since more competition and more choice pushes more people to brokers.”

Bailey predicts the mortgage market will maintain strong levels across NSW and Victoria, and hopes the WA government succeeds in boosting activity in Perth and the border regions.

Finally, he said he expected the solid growth in Queensland to continue.

“All in all, we’ll expect levels of competition to continue. We’d expect cost of funds will increase for most parties and they will be passed on to the consumer as well at some point over the next 12 months. That will require more people to understand what mortgage rate they’re paying and therefore more will need to go to a broker.”

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

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ASSOCIATION HAPPENINGS 4

, DATES TO WATCH

FBAA SAYS SUPERFUNDED PROPERTY A ‘GIMMICK’ The executive director of the FBAA, Peter White, says the survey by a loan-bidding platform claiming young Australians want to use their superannuation for a home deposit is not viable concept and is simply a media headline.

White said the same subject had come up following the release of the final report of the Financial System Inquiry in late 2014, and that while the idea worked in some countries, it would not work in Australia.

“I’m not against the concept, but the reality is that with the price of housing in Australia, many people in this demographic would

not come close to having enough superannuation for a home deposit,” White said. “It also doesn’t take into consideration lending costs, LMI, legal costs, stamp duty, and the capability of people to service the loan.”

He explained that superannuation existed to support people in their retirement, and any attempt to use it for housing would potentially open the floodgates for using super for other purposes, rendering the original purpose of superannuation redundant.

“There are state-based first home buyers grants to assist people in this

demographic to purchase their first home,” he said.

White said that while housing affordability was a real issue and options should be canvassed, this survey “should be seen as what it is – an attempt by a sales company with little or no expertise in the superannuation, government housing or lending sectors to generate publicity for its website.”

White’s comments come following the release of a survey conducted by LoanDolphin, which showed that 33% of Australians aged between 18 and 34 were willing to use their superannuation for a home deposit.

WHAT THEY SAID...

Shane Garrett “New dwelling starts hit all-time record levels during 2016, but today’s data provides further evidence that we’ve left the peak behind” P17

Martin North “The more highly leveraged state of households in NSW means a small rise in real mortgage rates will bite hard here. This despite all the focus in the press on WA and Qld” P20

Nerida Conisbee “The banks have sent strong signals that they will respond by not passing cuts onto borrowers, and we expect out of cycle interest rate rises by banks to continue” P24

A rundown of the next fortnight’s events FEBRUARY

2

What: MFAA Brisbane PD Day Where: Moda Events Portside, Hamilton Details: The association’s first PD Day of the year will include a welcome and update on the MFAA by the association’s new CEO, Mike Felton. Cameron Kusher, head of research at CoreLogic, will give a property update, and Bill Kantares, executive manager broker governance at Commonwealth Bank, will present a piece on identity fraud and protecting your business.

FEBRUARY

7

What: MFAA Melbourne PD Day Where: Encore St Kilda Beach, St Kilda Details: New MFAA CEO Mike Felton will give a welcome address and an update on the association, Cameron Kusher, head of research at CoreLogic, will give a property update with a focus on the Victorian market, and a credit repair specialist will present the main benefits to brokers of using a no-win, no-fee credit repair business for their clients with poor credit.

FEBRUARY

8

What: MFAA Sydney PD Day Where: Waterview, Bicentennial Park, Sydney Olympic Park Details: The MFAA’s newly appointed CEO, Mike Felton, will provide brokers with an MFAA update. Ben Weeding, buyer’s agent at Buyside, will present a property update focusing on current market activity and new opportunities in local areas and throughout NSW, and there will be a digital marketing update with tips on growing your business.

REGULATORY ROUNDUP 6

WORLD NEWS

IN THE RED

Fitch Ratings has revised its outlook on the Australian banking sector from Stable to a

UNITED STATES OF AMERICA THE FED CONFIRMS RATES WILL KEEP RISING United States Federal Reserve Chair Janet L. Yellen has spoken in California on “The Goals of Monetary Policy and How We Pursue Them”. She has reaffirmed the expectation of future rate rises.

“The extraordinarily severe recession required an extraordinary response from monetary policy, both to support the job market and prevent deflation.

We cut our short-term interest rate target to near zero at the end of 2008 and kept it there for seven years. To provide further support to American households and businesses, we pressed down on longer-term interest rates by purchasing large amounts of longer-term Treasury securities and government-guaranteed mortgage securities. And we communicated our intent to keep short-term interest rates low for a long time, thus increasing the downward pressure on longer-term interest rates, which are influenced by expectations about short-term rates,” she said.

“Now, it’s fair to say, the economy is near maximum employment and inflation is moving toward our goal. The unemployment rate is less than 5%, roughly back to where it was before the recession.”

She added that as a result of the economy’s considerable growth, the Federal Reserve began “modestly increasing” the country’s short-term interest rate target by ∑ of a percentage point to a range of ½–¾%, and although she could not say exactly when or by how much the next rate would rise, she said: “As of last month, I and most of my colleagues … were expecting to increase our federal funds rate target a few times a year until, by the end of 2019, it is close to our estimate of its longer-run neutral rate of 3%.

“The factors I have just discussed are the usual sort that central bankers consider as economies move through a recovery. But a longer-term trend – slow productivity growth – helps explain why we don’t think dramatic interest rate increases are required to move our federal funds rate target back to neutral.”

NEGATIVE CREDIT OUTLOOK AS A RESULT OF RISING HOUSEHOLD DEBT AND INCREASED HOUSE PRICE GROWTH making the banking system more sensitive to sharp corrections in the labour market and changing interest rates

BANKING INDUSTRY NOT A RISK: APRA APRA has released an Information Paper explaining that after continuous monitoring of the Australian financial industry – with a focus on the housing sector and associated risks – it has deemed that no change is necessary and that there is no change in the systemic level of risk.

As a result, the level for the countercyclical capital buffer will remain at 0%. “This decision has been made taking into account APRA’s other supervisory activities and prudential measures,” the regulator said in its report.

This included APRA’s supervisory work on housing lending standards as well as the creation of a benchmark in investor lending growth. The banking watchdog also looked at a number of key indicators, including housing credit growth, commercial and residential property price growth, loan pricing margins

and non-performing loans.

“In 2016, APRA maintained its focus on reinforcing and improving sound lending standards. In response to this, APRA believes the industry has appreciably improved its residential lending standards,” it said.

The countercyclical capital buffer was created to increase capital requirements for the banking sector in times when excess credit growth correlated with a build-up of risk. APRA can set the buffer at anywhere between 0% and 2.5% of the total risk weighted assets and can reduce or remove it in times of high stress.

When it was first introduced on 17 December 2015, the regulator decided that the buffer applying to the Australian exposures of authorised deposit-taking institutions would sit at 0% from 1 January 2016.

LENDER UPDATE 8

ANZ OVERHAULS STAFF BONUS STRUCTURE

FIRSTMAC EXTENDS TWO-WEEK SETTLEMENT GUARANTEE After three months of achieving a 100% success rate for its groundbreaking two-week settlement guarantee, non-bank Firstmac has announced it will be extending its guarantee until 31 March.

National sales manager Jake Sanders said every borrower who met the criteria, since launching the initiative last October, had settled within the guarantee period and, more importantly, on or before the due date of settlement.

“When we launched this initiative there were skeptics who doubted that it would be possible to guarantee such a short settlement, but we have proven them wrong,” Sanders said.

“We have managed to remove the risk of delayed settlement which, in the current market, is one of the greatest worries that borrowers have when they buy a home, and the feedback we are getting is fantastic.”

Sanders explained that the extension of the guarantee, which was meant to end on 31 December 2016, had come as a result of broker feedback that they wanted a faster turnaround from lenders within a set timeframe so they could manage their clients’ expectations.

“We have delivered that, allowing brokers to give their clients certainty around a very emotional purchase and eliminate the risk of potentially incurring thousands in penalty interest due to late settlement,” Sanders said.

A systematic drive to speed up the non-bank’s approval process by eliminating unnecessary steps and making internal processes more efficient has led to the swift settlement period, and is just one change in a number of developments made by Firstmac to streamline its touchpoints with brokers and give them the industry’s most efficient service from accreditation through to application and settlement.

Firstmac recently launched an industry-leading online accreditation system which allows brokers to request accreditation, do the necessary training and gain full access to Firstmac’s broker site with just 10 minutes of online work.

Using the new system and the guarantee, a broker who has never dealt with Firstmac before can go from seeking accreditation to settling their first loan for a client in just two weeks.

ANZ has announced that it will overhaul its retail banking staff ’s bonus system. This follows the release of the Sedgwick review’s Issues Paper on banking remuneration.

Speaking to the Australian Financial Review, Catriona Noble, managing director of retail distribution Australia at ANZ, said that satisfaction would be deemed a more important metric than sales targets when calculating staff bonuses.

Noble also confirmed the dumping of accelerator payments, which reward staff with a higher rate of commission as sales volumes increase, and financial gateways, which incentivise cross-selling targets through predefined conditions. The risks of both forms of payment were highlighted in the Issues Paper on Remuneration in Retail Banking released on 17 January.

The announcement by Noble marks a drastic move away from the culture described by various whistle-blower reports published in the Issues Paper, which spoke of unethical sales incentives that often put the bottom line before the customer.

ANZ’s new incentive plan will come into force on 1 April and use a “balanced scorecard” approach, the AFR reported. This system will give a 70% weighting to customer and teamwork metrics and a 30% weighting to sales targets.

“Discretionary incentive payments will be based on a banker’s whole-of-role performance relative to their peers (ie customer, people, financial, risk/process measures, and our ANZ Values),” an ANZ spokesperson told Australian Broker.

“This new way of determining incentive payments will better recognise those who are

performing strongly across all aspects of their role, with emphasis on both objectives (what is achieved) and values (how it is achieved). This will increase the focus and weighting on the customer as an important measure.”

The bank decided to keep a certain level of sales targets after conducting a trial at 10 branches in which sales targets were eliminated entirely.

End results found that sales numbers declined across deposit products, home loans, wealth management and business products.

With this information, ANZ decided to combine both customer outcomes and staff financial performance in its new scorecard.

“We felt it was important for our staff to have a strong desire to compete to have a customer choose us for a home loan,” Noble told the AFR. “This is not about creating a need to make a sale. But for a customer that has a need [for a mortgage], it is about making sure ANZ is their number one choice.”

To assess customer satisfaction, ANZ will conduct “A to Z reviews” with customers – an interview that assesses individual goals and needs to match the customer with the right products.

“We recognise the need to improve our ability to look after customers and meet their expectations, so customers can trust the bank, and [know] the solutions we recommend to them are appropriate and in their best interest and not just in the best interest of the bank,” Noble said.

She acknowledged that to implement these changes, ANZ leaders would have to be competent and capable as both coaches and evaluators of more subjective measurements such as customer satisfaction.

INVESTMENT HOUSING LOANS CONTINUE TO SURGE

$32.7 $12.9

BILLION

(or 39.5% of total) in loans for investment purposes

BILLION

Total value of dwelling finance commitments as at November 2016

$19.8

BILLION in owneroccupier loans

Source: ABS

10

COVER STORY

BRAND POWER

Zippy Finance’s Louisa Sanghera on building her brand presence using nothing more than creative business networking

Louisa Sanghera, Zippy Finance. Photography by Jennifer Taylor, Vividity Photography

11

IF YOU ask anyone in Sydney’s Northern Beaches if they can recommend a mortgage broker, there’s a high chance you’ll hear Louisa Sanghera’s name. This wouldn’t be particularly unusual if it wasn’t for the fact that Sanghera has only been a broker for four years, and only set up her brokerage, Zippy Finance, less than two years ago.

Sanghera has built brand awareness of Zippy Finance in Northern Sydney remarkably swiftly, but what’s even more remarkable is how she’s done it.

Like most brokers, the majority of her business comes from referrals, but for Sanghera these referrals are a result of yet another business she started – the business networking community Connect for Success, based in Northern Sydney. And with over 1,000 businesses already involved across the network’s social groups, Sanghera clearly has a real knack for building businesses from the ground up, quickly and successfully.

Connect for Success was born out of Sanghera’s own experience of moving to Sydney after six years living in country Victoria, and 22 years working in finance in the UK prior to that. Embarking on a new path as a mortgage broker, she didn’t know many people and consequently found it hard to find leads. Her efforts at business networking in the Sydney

wanting any business lending or mortgage or car finance or anything, they’re recommending us. It’s all the referrals that we’ve got from within the group that are just amazing,” she tells Australian Broker.

It’s the support of the local community that’s been at the centre of Sanghera’s success – a success that can be quantified by a figure of over $50m of business in only the first 12 months in operation.

But one of the most surprisingly beneficial parts of the network, Sanghera explains, is having the opportunity to get feedback on your business from other non-mortgage businesses.

“It’s great to have these other businesses giving input as well, because actually they’re potential clients, so they’re seeing it from a client’s perspective,” she says. “The connections have been invaluable.”

A strategy for success In addition to Zippy Finance and Connect for Success, Sanghera owns another three networking businesses with Facebook pages, specifically for mums based in the Northern Beaches and Inner West. These give her access to a pool of over 20,000 mums – a demographic Sanghera considers to be incredibly influential.

“I do focus on the mums,” she says. “They’re great referrers.”

“This has really built our brand up and down the North Shore. Most local business owners know Zippy Finance, and so when they hear of anyone wanting any business lending or mortgage or car finance or anything, they’re recommending us.

It’s all the referrals that we’ve got from within the group that are just amazing” CBD made her realise that there wasn’t a similar group available closer to home, and that there was a gap in the business networking community for a Northern Beaches meet-up. It must have been just what the community had been waiting for, because the businesses couldn’t come fast enough to Sanghera’s networking group.

The Connect for Success network consists of a maximum of four business people per industry, so the group represents a large cross-section of businesses. However, the mortgage industry is Sanghera’s domain, and Sanghera’s alone – a strategy that has done wonders for her business.

“This has really built our brand up and down the North Shore. Most local business owners know Zippy Finance, and so when they hear of anyone

Furthermore, each of these businesses acts as a partner to Connect for Success, with banners and advertising positioned all over their sites, bringing in more contacts to that network, which in turn increases Sanghera’s referral network for Zippy Finance.

Her strategy is rather ingenious, and one that has worked wonders for her brokerage’s bottom line.

While residential loans make up a lot of the business that comes Sanghera’s way, she also branched out into commercial business lending last year – an area she was able to grasp quickly thanks to her banking background.

However, for many residential brokers, cracking the commercial nut is a tough feat. “I can

understand for brokers that haven’t had the experience it is a lot more complex; I think they really need to get to grips and be confident with their residential lending before they attempt commercial lending,” she advises. “The hardest bit is knowing how to market yourself for commercial lending, and getting the deals ... and I’m in these business groups and I still find it hard!”

Sanghera says brokers should concentrate on building relationships with accountants, buyers’ agents, planners and tax agents in order to build referral relationships that will bring in commercial leads. “I use my team of people all the time now; it took me a while to build that – I wish I’d built that in the early days rather than later.”

However, Sanghera says putting all your eggs in one basket is a mistake. “Network more!” she says. “Don’t tie yourself to one or two people, because things can happen with those relationships as well. I had a great relationship with an accountant, but they got too busy and lost interest in us, and I wish I had spread my clients around other accountants.”

When it comes to starting out, Sanghera is also quick to impart this pearl of wisdom: “Don’t be scared to get in and speak to the credit managers. Get in there and speak to some credit managers and ask them to show you applications and how they do it, and learn.

Make the BDMs give you time to sit down and show you how to do a commercial deal,” she says.

She adds that on the commercial side her experience is that BDMs are not quite as proactive as residential BDMs, and for that reason brokers may need to take charge of their own commercial education. “If they spent more time with us, in helping us train and get more into commercial, they’ll benefit long term. But I think that a lot of them are very short-sighted … it’s a real bugbear of mine,” she admits.

Be your brand To get to the next level in a new business, sometimes you need to think a little more creatively, and that’s exactly what Sanghera has done. She has not only built a brand but also built multiple businesses that have put her name top of mind for those in Northern Sydney, and this is without a doubt her biggest achievement – not the loan volume, not the figures, but the fact that she has built a brand from scratch.

“The fact that people know Zippy Finance, and they go, ‘Are you the lady from Zippy Finance?’

It’s just been amazing.

“From knowing nobody, to feeling like I know everybody on the North Shore now in 20 months or something, it’s just amazing.”

Sanghera’s journey has shown how creating connections is key to success as a broker, but of course she revealed this pearl of wisdom early on: just take a look at the name of her networking group.

12

OPINION ARE WE REALLY IN A HOUSING BUBBLE?

Michael Potter on runaway property prices, and why increasing or decreasing interest rates is not the answer

HOUSE PRICES are out of control in some Australian capitals. And recently there have been proposals that this should be countered by halting interest rate cuts – a move that would not only fail to solve the problem but also have a detrimental impact on the rest of the country, where housing is not booming.

In 2016, the prices of dwellings rose by 16% in Sydney, 14% in Melbourne and 11% on average across all the capitals, according to CoreLogic, but prices fell by 4% in Perth.

The ABS has capital city prices almost doubling since 2003, with Sydney prices increasing by 50% since 2013.

Certainly, this rate of increase cannot be sustained. House prices in the booming cities are growing much faster than incomes, and are either going to slow or fall. It may not happen soon, but it will happen.

Bubble or no bubble?

But are we in a house price bubble right now?

We can’t say for sure. Market bubbles are never perfectly clear at the time, otherwise the

galloping price increases would stop. So don’t let anyone get away with ‘claiming conclusively’ that there is a housing bubble.

Regardless, price growth is unsustainable and will come to an end. The economy would suffer a hit if prices suddenly stopped growing, but the effect could be severe if prices started to fall.

While the regulators think that banks can absorb a hit to house prices, the effect on construction and real estate could be large, and price falls are expected to cause homeowners to cut consumption, meaning the impact spreads throughout the whole economy.

This is an important risk; what should be done in response? In addition to the suggestion that planned interest rate cuts should be cancelled, the Organisation for Economic Co-operation and Development (OECD) has even suggested rates should increase to cool the housing market.

However, this is exactly the wrong solution to the problem. While housing in some areas is going gangbusters, the rest of the economy is not. Economic growth is sluggish, particularly with the negative quarter of growth in

September 2016. Wages growth after inflation is almost non-existent, forecast to be 0.5% during this financial year and the next (there goes our next holiday).

And business investment is terrible. Mining investment is expected to halve over the next three years, but non-mining investment isn’t replacing it. As a result, overall business investment is set to be at near-record lows: lower than the levels reached in the 1970s and 1980s recessions, and only barely above the levels reached in the depths of the 1990s recession, as shown in the graph accompanying this article.

And yet interest rates are lower today than in each of these previous recessionary periods.

An economy missing the target Meanwhile, the Reserve Bank is forecasting underlying inflation to be less than 2% for the next two years, below its target range of 2–3%.

This hardly seems a time to prohibit lower interest rates, or – worse – push for higher rates. The collateral damage to the non-housing economy is not worth it. “But we must have

13

Michael Potter is a research fellow in the Economics Program at the Centre for Independent Studies, and author of “The Looming Crisis in Business Investment” (Policy journal, Summer 2016–17 edition).

THE DOWNTURN

Investment as a share of economy 18%

16%

Private sector investment as % of GDP

14%

12%

2016 10.1%

10%

Total

Nonmining

8%

6%

4%

2%

0%

Mining

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

For the financial year ended Source: ABS to 2015; author’s calculations based on forecasts in MYEFO for remainder

Market bubbles are never perfectly clear at the time, otherwise the galloping price increases would stop. So don’t let anyone get away with ‘claiming conclusively’ that there is a housing bubble higher rates to prick the housing bubble,” the cry will go out. However, this knee-jerk response ignores other tools that are much better targeted at the housing market.

In particular, the rules about mortgage lending could be changed directly. The blunt tool of interest rates affects both housing and business lending. However, the regulations on bank lending can be targeted at particular parts of the market.

Banks could be required to hold more capital against home loans, and stricter standards could be required for loans with low deposits, while standards for non-housing lending

remain unchanged. While these might be onerous regulations on banks, they won’t cause substantial collateral damage to the rest of the economy, but will raise the cost of borrowing for property buyers.

There are plenty of other ways to restrain housing price growth, including shortening planning delays — which have blown out substantially in Sydney — and trimming population growth, which is a fundamental driver of demand.

Releasing more land and relaxing planning laws are also important solutions, but these take considerable time to change. Building transport

infrastructure to underpopulated areas takes even longer. And despite what some claim, changing negative gearing or capital gains tax won’t have a large effect on house prices, but will cause other problems.

Most property is owner-occupied, so is unaffected by these tax changes. In addition, the tax changes won’t substantially change the total demand for properties; it will just change the mix between renters and homeowners. Tax changes won’t suddenly mean the population grows or shrinks; the need for property (whether rented or owned) will remain broadly the same.

It is worthwhile to try to dampen runaway house prices (I say this as a homeowner myself), but slower house price growth harms existing owners. And any dampening strategy should not be at the cost of inhibiting economic growth, investment or wages, which are currently weak and need all the help they can get.

This article first appeared on Business Insider Australia and is republished with permission.

More at businessinsider.com.au

14

BEST PRACTICE A SOCIAL STRATEGY

New research has revealed the specific approach service-based businesses need to take to get the best customer reach on Facebook

even if a respondent’s relationship with a brand didn’t change per se after liking the brand’s page, the respondent did admit to looking at more photos of products posted by the company on Facebook. This could be interpreted as a change in relationship thanks to the respondent interacting more with the brand, which in turn was a positive outcome for the brand.

A service-based social strategy The research also showed evidence that there were differences between how product-based brands interacted with potential customers, when compared with service-based brands.

These differences require brands to use different engagement strategies.

Services, such as those provided by a mortgage broker, can be difficult to evaluate by a customer, as opposed to products, which are tangible and easily assessable. “As a result, service companies need to initiate social interactions with their customers in order to communicate value and set appropriate expectations,” the researchers told The Conversation.

Of the 300 Facebook users the researchers surveyed, ‘‘fans” of product brands were found to be more likely to report engaging in “passive interactions” with the company – things such as reading or liking posts – compared with fans of service brands. They also reported a greater intention to make future purchases. However, the research did not find any difference between the groups in their intentions to engage in more active Facebook interactions, such as sharing or commenting on posts.

The new research offers social media lessons for service-based brands such as finance brokers, for example the need to focus more on personalising their Facebook messages in an attempt to further stimulate and enhance this elevated sense of connectedness. This is because creating feelings of brand connectedness is a strong outcome of Facebook interaction with service-based brands.

‘Likes’ don’t equal engagement

RECENT RESEARCH conducted by assistant professors at Elon University and Radford University has revealed that the primary reason consumers choose to ‘like’ a brand on Facebook is a sense of existing loyalty or obligation to support a brand. “The largest percentage of respondents said they liked a brand simply because they felt that’s what a loyal fan should do,” the researchers said in an article on The Conversation. “The next biggest share seemed to be more focused on getting something in return for their like, such as information, social recognition or entries into contests.”

Surprisingly, only a small percentage of respondents said they had liked a brand on

Facebook simply because they enjoyed the brand, as opposed to feeling a loyalty or obligation to the brand. This shows that some users who like brands on Facebook have done so even if they haven’t purchased a product or service from the brand or provider.

Over half of the survey’s respondents said that while they may have read the brand’s posts or viewed its images in their Facebook newsfeed, they hadn’t given any information whatsoever back to the brand.

Only 20% said they had reposted or shared content from the brand, while a mere 17% reported actually commenting on the brand’s posts. However, the research also indicated that

According to the researchers from Elon Radford, simply adding up Facebook likes does not necessarily equate to having an engaged customer base.

“Many of our respondents liked their respective brands for reasons other than wanting to engage in an interactive relationship. In other words, quantity of likes does not equal quality of relationships,” they said.

“In addition, brand and social media managers should not automatically assume that new Facebook followers are new to the company.

Many of our respondents felt that it was their obligation to a favourite or oft-purchased brand to like that brand on Facebook.”

The researchers added: “Although passive engagement with followers is perhaps not what gets the most attention when pundits discuss the benefits of Facebook engagement, it still offers benefits, such as becoming more ‘top of mind’.

Brand managers should not always assume that their loudest and most active Facebook followers are the only ones getting the message.”

15

CONQUERING SOCIAL MEDIA MARKETING Social media strategist Jay York on how to measure your business’s social reach Businesses, professionals and others who use social media to promote a brand are often unsure whether what they’re doing is effective. Their usual ways of measuring success – such as how many leads or sales were generated – don’t really apply, and that leaves them puzzled.

“Even people who are enthusiastic about social media aren’t always clear on what to expect,” says Jay York, senior social media strategist at EMSI Public Relations (www.emsincorporated.com).

“One problem, I think, is that people mistakenly focus too much on ‘likes’ and figure the more likes the better.”

So just what are the best ways to calculate whether you’re setting and achieving realistic marketing goals on social media? Here are a few things York says you should expect from your efforts:

1

Growth of followers You definitely should see growth in your number of followers, but beware of trying to compare your growth to others’. A company with a well-established brand is going to see growth more quickly than a company that hasn’t had much exposure.

Follower growth is a long-term game, so you shouldn’t get discouraged if it doesn’t happen as quickly as you had imagined.

2

Quality and quantity of reach To understand social media’s reach compared to other ways of getting your message out, York suggests you should think of a billboard.

You can pay to put your message on a billboard alongside a highway where passing motorists will see it. But are those people in your target audience?

Some are, no doubt. Many aren’t. With social media, you can find the people interested in what you’re offering. You

can also use social media’s analytic tools to gauge how far and wide your message is reaching.

3

Engagement

The level of engagement on social media varies greatly. Some people just read or look at what everyone else is posting, but don’t post themselves. Others regularly post their own content, and they like and share what others post. Often they’ve attracted an enormous following.

“Those are the people you want to go after,” York says. “Follow them and they may follow you in return. If they share one of your posts, then you’re reaching their large audience.”

4

Traffic to your website Whenever you’re interacting on social media, one of your goals should be to send traffic to your website, so be sure to include a link. How can you measure whether this is working, though? One way is Google Analytics, which will not only tell you whether your website traffic has increased, but also let you know where that traffic came from.

5

The immeasurable

Sometimes the impact of social media efforts can’t be measured. For example, if one person sees something a business posted on Twitter and mentions it to a friend, that friend might check out the company’s website. If asked how they heard about the business, that person will say it was through a friend – even though it was social media that got the connection started.

“There’s a science to managing a social media campaign,” York says. “If you want the best results, you can’t take a willy-nilly, anything-goes approach.

You’ve got to carefully determine the most effective ways of reaching your target audience, choose content that’s most likely to engage them, and monitor what’s working.”

16

COMMERCIAL FOREIGNERS DOMINATE COMMERCIAL SALES Foreign investors made up the biggest buyer segment for Australian commercial property in 2016, according to Savills’ latest data, suggesting foreign nationals still consider the country to be an investment safe haven

THE COMMERCIAL property investment market is still surging and commercial and industrial real estate group Savills reports that another $26.9bn was spent in the 12 months to December 2016. Of this, foreign investors spent more than $10bn on a whopping 39.5% of the market.

The latest research shows that the 2016 commercial figures were down by a significant 20% on the record $33.7bn spent in 2015; however, last year’s results were still strong for the five-year average, which sits at $25.7bn.

“The 2015 calendar year was obviously the standout in what has been an extraordinary investment market over the last four or five years, and 2016 – up nearly 5% on the longer-term average – was also a strong result,” said Savills’ national head of research Tony Crabb.

“Given all indications from Savills offices in Australia and across the globe, there seems little doubt that both local and off-shore investor demand will deliver another year of outstanding growth in 2017, the only qualification being a possible lack of stock,” he added.

According to Crabb, investors spent $14bn on office, $6.5bn on retail and $6.4bn on industrial property in 2016. Foreign investors dominated all three categories – they were responsible for 46% of office sales, 31% of retail sales and 36% of industrial purchases.

On a state-by-state basis, NSW was at the top of the tally for office sales, with $6bn in office purchases making up nearly half (43%) of the national total; $3.5bn of these sales were in the CBD. The state also had the biggest industrial spend, at $2.7bn.

Queensland topped the retail sector nationwide, with 32% of total sales in the sector ($2.1bn) occurring in the Sunshine State.

Crabb said 2016’s foreign investor take at nearly 40% of the commercial market was 80% higher than its 22% share in 2014, which is indicative of the relative strength of the Australian investment market and Australia’s continued ‘safe haven’ status, despite tougher foreign lending regulation.

The local institutional investor share of the commercial market fell from 48% (funds 31%, trusts 17%) in 2014 to 30% (funds 18.6%, trusts 11.4%) in 2016.

FOREIGNERS LEAD THE CHARGE

Australian commercial property sales buyer profile (%) 12 months to Dec 16 Private investor 14.8% Fund 18.6%

Developer 5%

Foreign investor 39.5% Trust 11.4%

Government Syndicate 3% Undisclosed Owner-occupier 2.3% 2.7% 2.6% Source: Savills Research

17

HIA: WE’VE PASSED THE PEAK

House vs other dwelling commencements – Australia 40,000 35,000

No. of commencements

30,000 25,000 20,000 15,000 10,000 5,000

House – Seasonally adjusted

Other – Seasonally adjusted

Sep-2016

Sep-2015

Sep-2014

Sep-2013

Sep-2012

Sep-2011

Sep-2010

Sep-2009

Sep-2008

Sep-2007

Sep-2006

Sep-2005

Sep-2004

Sep-2003

Sep-2002

Sep-2001

Sep-2000

Sep-1999

Sep-1998

Sep-1997

Sep-1996

Sep-1995

Sep-1994

Sep-1993

Sep-1992

Sep-1991

Sep-1990

Sep-1989

0

Source: ABS, HIA

QUEENSLAND HOME BUILDING TOPS OUT The ABS has released its latest set of building approval statistics, and it appears that Queensland’s home building industry has officially peaked.

Warwick Temby, executive director at the Housing Industry Association (HIA), stated: “Home building approvals in the three months to November 2016 were down 25% on the 2015 level … But it’s a mixed story across the State and in different parts of the industry.”

Temby referred to the fact that while multi-unit approvals in Brisbane and the Gold Coast had more than halved, detached home building in Brisbane and the Gold Coast had increased by 7% and 21% respectively.

“Hervey Bay experienced a 40% increase in approvals over the year to be one of the few regional areas to grow,” he added.

“The slowdown in multi-unit approvals is only to be expected after a few years of unprecedented growth, but the lengthy pipeline of work underway will see continued high levels of activity on the ground well into 2017.

“The steady growth in detached home approvals, at least in the South East, will also contribute to high ongoing levels of activity on residential building sites this year.”

HIA senior economist Shane Garrett echoed Temby’s sentiments, referring to the ABS’s September 2016 quarterly figures for the nation.

“The result for the September 2016 quarter represents the second consecutively quarterly decline in new dwelling starts, with a substantial portion of the reduction happening on the multi-unit side,” Garrett explained.

“In contrast, detached house starts have been holding up quite well. The upturn in new home building between 2012 and 2016 was heavily influenced by increased apartment building with output more than doubling.”

Queensland is also one of only two states that saw an overall increase

in new dwelling commencements (6.3%) in the September 2016 quarter. NSW was the other state, with an increase of 5.4%. All of the other states and territories experienced a decline in new dwelling commencements, with the ACT experiencing the most dramatic decline of 39.6%, followed by SA with a decrease of 20%.

There were also large reductions in WA (13.6%) and Victoria (9.6%).

Falls in new dwelling starts also occurred in the NT (7.6%) and Tasmania (0.6%) during the September 2016 quarter.

“New dwelling starts hit all-time record levels during 2016, but today’s data provides further evidence that we’ve left the peak behind,” Garrett said.

Garrett concluded that the HIA anticipated new home starts would continue to ease over the next few years and bottom out at around 172,000 during the 2018/19 financial year, with the higher-density market absorbing the bulk of the reduction.

18

A BIG DEAL WHEN THE STAKES ARE HIGH

Peasy’s director Joel Wyld on one of his most memorable deals, in which his clients stood to lose $140,000 if they couldn’t get finance in time

THE SCENARIO I just closed a deal in which the clients, a husband and wife, who had purchased a property in November 2016, had paid a 10% deposit based on the assumption that they would be able to gain approval without any issues.

They had been looking for quite a long time (standard in Sydney!) and to make their purchase happen they needed to sell one of their existing properties. Being a $1.4m purchase, the deposit was quite a hefty one, and so in not having pre-approval, putting the 10% deposit down was certainly a massive risk for them to take.

The clients had been banking with their current bank for a few years, and in previous discussions and a preliminary chat they were told that they wouldn’t have any issues getting their loan approved. Unfortunately, when it came to putting in an application, they were told after a considerable amount of time and effort that they would not be able to get finance with this bank. Due to the amount of time that had lapsed, it left only nine business days for me to organise finance and get them ready for settlement.

THE SOLUTION Over the next nine days we had to carefully review our clients’ financial situation to ensure there would not be any delays, as every day was crucial and there was a lot at stake. They were both self-employed, and there were quite a few moving parts regarding their respective financial situations.

I collected all the necessary documentation from each client and began researching the options immediately.

By the end of the day, we had three options which fit the clients’ requirements and objectives, as well as a strong indication that finance wouldn’t be an issue.

We obtained pricing from each of these options, and went ahead with the lender that ticked all the boxes (policy, speed and pricing), which in this instance was Westpac.

We secured a variable Rocket Repay loan with the major bank, which offered an offset account with the ability to make additional repayments – a feature that was one of the clients’ key requirements.

Our application specialist began preparing the application immediately and had it ready to go within an hour. The applicants signed the application, and by the end of the day we had collated the documents for submission to the lender.

At the same time, we ordered the valuation and called the valuer to arrange access with the client as soon as possible. The valuer could inspect the property the very next day, and after escalating the timeline (multiple times!) we could get the valuation report on the same day of inspection. We immediately forwarded this and the application on to the bank and contacted our BDM who could push the deal along for us. As we are listed as a premium broker with Westpac, we were able to get a conditional approval the following day.

Once approval was granted, we escalated the file again to have documents issued, and following this we had a meeting at the local branch to sign the documents together.

19

Joel Wyld

I think it is easy for us to become complacent and assume our job is done once we have sealed the deal, when really we need to continually build awareness about our value proposition

THE TAKEAWAY The reason I find this deal so memorable is that it shocks me to see that people are still unconditionally exchanging on properties without a pre-approval! Our clients stood to lose $140,000 if they didn’t get their finance sorted in time, and this situation could have been completely avoided.

The thing I don’t understand is that we still have more than 40% of people going direct to the bank or lender for their home loan, when with a broker you have access to over 40 different lenders from just one conversation. It makes me think that people only do this because they don’t know what we do or what we can offer.

If we had spoken to these clients earlier, the high-stakes nature of their situation could have been avoided and they would have been ready to go ahead with their loan much sooner.

This situation showed me that as brokers we need to be on top of our customers and referral partners to ensure that they always understand what we do. I think it is easy for us to become complacent and assume our job is done once we have sealed the deal, when really we need to continually build awareness about our value proposition.

20

CONSUMER INSIGHTS ONE IN FIVE MORTGAGORS AT RISK WHEN RATES RISE The consensus is that interest rates will almost certainly rise this year. But how will this affect Australian households?

NSW FOLK RUSH TO SECURE FIXED RATE HOME LOANS

22.04% of all loans written in December 2016 were fixed rate home loans.

This was an increase of 19.51% from November 2016

27.34% of all fixed rate home loans written in December were in NSW Source: Mortgage Choice

DIGITAL FINANCE Analytics (DFA) has released a detailed analysis of the susceptibility of Australian households to mortgage stress in the case of interest rate rises. Approaching the analysis from the perspectives of both the number of households and the value of mortgages, DFA principal Martin North has come to two equally shocking conclusions.

When analysing the relative number of households in Australia with an owner-occupier mortgage, DFA examined how much “headroom” these households had for rising rates, taking account of their income, the size of their mortgage, whether they had paid ahead, and other financial commitments. DFA then ran multiple rate-rise scenarios across the data to determine the likelihood of mortgage stress.

According to the results, if interest rates were to rise by a meagre 0.5%, 20% of households would have difficulty meeting their repayments, while 24% would struggle if rates rose by between 0.5% and 1%. Young, growing families and

young, affluent households were found to be most at risk. If there was a 7% rate rise, 65% of households would not be able to cope with their mortgage repayments.

Breaking down the data by state, NSW is the most sensitive state as a result of having a larger volume of loans as well as a larger value of loans relative to incomes. Younger households are again relatively more exposed in NSW, because their incomes tend to be more limited and are not growing in real terms relative to mortgage repayments.

DFA’s analysis also showed that those households who sourced their mortgages via mortgage brokers were more likely to be in difficulty with a small rate rise, compared with those who went directly to banks. “This, once again, shows third party loans are more risky,” North said. “This perhaps is connected to the types of people using brokers, as well as the broker’s ability to suggest lenders with more generous underwriting standards and

coaching on how to apply successfully.”

On changing the perspective of the data analysis to that of relative mortgage value rather than household count, however, a different set of results was revealed. “It is the value related lens which provides the best view of relative risk,” North explains. “This is how risk capital should be allocated.”

Applying the same 0.5%–2% movement in rate scenarios, it was found that more than 20% of the value within the NSW portfolio would be impacted.

Unsurprisingly, a significant proportion of total mortgage value resides in NSW, thanks to the larger home prices and therefore bigger loans.

Victoria and WA would also be affected by an incremental rate rise, but to a far lesser degree.

“In other words, the more highly leveraged state of households in NSW means a small rise in real mortgage rates will bite hard here. This despite all the focus in the press on WA and Qld,” North said.

21

SWANKY SUBURBS TO BE HIT HARDEST BY RATE RISE Digital Finance Analytics’ (DFA’s) household segmentation survey, analysed from the perspective of mortgage value rather than number of households, has revealed that the inner and outer suburbs as well as the urban fringes of Australia’s capital cities will be most at risk of mortgage stress if interest rates rise, even by a meagre 0.5%.

This is a result of the high price of property in these areas, and the larger mortgages that these city dwellers have therefore taken on, relative to their income.

“In other words, there is a geographic concentration risk which needs to be taken into account,” said Martin North, principal of DFA, in his analysis online.

“Our household segmentation models highlight that from a value perspective, young affluent and exclusive professionals have a dis-proportionally large share of value, and a significant proportion of this would be at risk from even a small rise.

“Although affluent, many at risk households are grossly over-committed, with little free cash,” he told the Australian Financial Review.

“Everyone focuses on Western Australia and Queensland but there is a much broader group of households that are closer to the edge and will find it difficult to cope if interest rates go up.”

North’s analysis shows that ‘soloists’ – those borrowers driven primarily by finding the best rates – are more sensitive to small rate rises, in particular those who got their mortgages via mortgage brokers. In comparison, those who got their loans directly from the bank, without an intermediary, are least exposed.

His analysis comes following a twomonth-long avalanche of out-of-cycle rate rises by the banks across both fixed and variable rates for investors and owneroccupiers. These rate rises are expected to continue as the cost of capital funding on international markets soars.

MORTGAGE HOLDERS UNHAPPY WITH MAJOR BANKS

Satisfaction among mortgage holders with the major banks has dropped to

Satisfaction among non-mortgage customers has dropped to

75.4%

80.5%

In the past 12 months

Satisfaction of mortgage and non-mortgage customers – 10 largest consumer banks1

Base: Australians 14+

100%

Percentage very or fairly satisfied

Mortgage customers Non-mortgage customers

90%

80%

70% ING DIRECT

Bendigo Bank

St.George

Suncorp

BankWest

CBA

Bank of Queensland

ANZ

NAB

Westpac Source: Roy Morgan Research

22

TECH FOCUS FINTECH MARKET TO DWINDLE? The chief executive of an Australian fintech start-up has predicted that the large number of fintechs will ultimately whittle down to a mere ‘two or three’ amid the high costs of funding

SMALL BUSINESS lender OnDeck’s chief executive, Cameron Poolman, has stated that, as the number of fintechs in Australia increases, companies will have to reduce costs or be forced to consolidate if they are to become profitable.

Speaking to The Australian, Poolman described the process of running a fintech after the first 12 months as inherently expensive.

“The economics are different [to banks]. You’ve got a higher cost per acquisition, or you’ve got origination fees from a broker or partner, you’ve got the cost of capital, loss rates and administration costs,” he told the paper.

“That’s why you actually need to build scale to make these things profitable.”

He added that there was still a lack of awareness of fintechs and that “really high” costs such as employing staff, complying with regulation, and advertising could significantly eat into a fintech business’s margins. As a result, Poolman predicts that the overall fintech market will eventually whittle down to only “two or three” players.

According to Poolman, low awareness of fintechs is the biggest challenge in the market, although this has improved. One in

four businesses now have knowledge of their existence, which is up from 16% recorded earlier last year.

OnDeck was reluctant to divulge the start-up’s loan book or loss figures; however, Poolman told The Australian that performance was in line with the company’s three-year budget.

In its most recent accounts filed for January to December 2015, OnDeck showed a $2.9m loss on $463,000 worth of loans.

However, the company was not lending during this entire period.

Listed in 2014, the company stressed to

23

HASHCHING TURNS ONE, TOPS 350 BROKERS

investors that it would experience an annual adjusted earnings loss of between US$35m and US$43m in gross revenue of US$290m.

Poolman’s comments came a few weeks after ASIC released a set of licensing exemptions that allow eligible fintech businesses to test certain financial products and services for a period of 12 months without first having to obtain an Australian Financial Services Licence or Australian Credit Licence.

This marks a big moment for Australian fintechs, as the regulator’s new exemptions signal a softer approach to the regulation of

financial services technology start-ups and a commitment to innovation that will benefit consumers and the burgeoning start-up community overall.

New and disruptive financial products and services offer greater competition in the market, which is of utmost importance to consumers, while the new exemptions will also help build the environment for Australia’s fintechs to launch into Asia and other overseas markets.

The less rigid regulation may also encourage greater local and foreign capital investment in fintech innovations in the future.

Mortgage marketplace HashChing has celebrated its first full calendar year in operation, during which it signed up more than 350 brokers.

The fintech has reached a total of $3bn worth of received home loan applications and has rolled out a pilot of the first virtual identification system for home loan approvals in Australia.

The MFAA’s former CEO, Siobhan Hayden, was also appointed HashChing’s COO in December.

“HashChing has come a long way in alleviating the traditional pain points for mortgage brokers in Australia, and we’re looking forward to working even closer with them in the new year to make HashChing their number one lead generation platform,” Hayden told Australian Broker.

Mandeep Sodhi, the fintech’s CEO, said a key focus had been on streamlining the home loan process for both brokers and customers. “We’ve pioneered a completely digital home loan application process, and this has paid off with the incredible milestone of $3bn worth of home loan applications,” he said.

He added that the growth that HashChing had experienced in the last two months of 2016 was exceptional.

“While that first billion took us a year to accomplish, the last billion has only taken two months, so we’re scaling incredibly quickly.”

Atul Narang, HashChing’s CIO, said that the mortgage marketplace was in the process of looking to introduce more technology innovations for a simpler home loan process in the year ahead.

“The feedback we have received from customers is that while they appreciate the ability to compare their options, they don’t want to be overwhelmed with choice when they’re applying for a home loan.”

24

MARKET WRAP MARKET TALK

2017: THE YEAR OF MEAGRE PROPERTY PRICE GROWTH? Recently released data has shown a decrease in demand for property, as well as a decline in residential dwelling approvals, which may suggest that Australia has entered what will become a slower year for house value growth

A KEY figure in the property development industry has warned that if Australian residential development doesn’t continue on a sideways or upwards trajectory, those living in areas of increasing unaffordability could suffer even more in the near future.

According to Matthew Pollock, Master Builders Australia’s national manager of housing, falling dwelling approvals could push up house prices.

“With high population growth expected in Sydney and Melbourne, and persistently high house price growth and auction clearance rates over the past couple of months, it is important that residential building activity keeps pace with underlying demand. Otherwise supply constraints may push up house prices and put further pressure on future housing affordability, particularly in Sydney and Melbourne,” he said.

His comments were in response to the latest monthly dwelling approval figures from the ABS, which showed that dwelling approvals fell in November 2016 by 2.9% in trend-adjusted terms, the sixth monthly decline in a row. The figures also showed that dwelling approvals were down 10.1% (in trend-adjusted terms) compared to November 2015. The only exception was WA, where approvals grew after almost two years of month-on-month declines.

However, Pollock’s theory hinges on the premise of high property demand, which is at odds with the latest data released by REA Group Property in its January 2017 Demand Index. The Index indicates that the property market may have peaked last year, and that demand is on the decline nationwide.

On realestate.com.au, buyer demand was shown to be at an all-time high in 2016, peaking

in October and November before dropping slightly, by 6.6%, as the year drew to an end.

In the first month of 2017, the easing trend seems to have continued, suggesting that the record price rises seen in Sydney and Melbourne last year are likely to relax as the year goes by.

One of the key reasons for the decline in demand is the surge in out-of-cycle rate increases implemented by lenders at the end of 2016 and continuing in January 2017. Over 200 loan product rates have been increased already, which the REA Index says will undoubtedly be having an effect on affordability issues for buyers in the eastern states.

The majority of economists are also predicting at least one cut to the official cash rate this year, which may be further deterring borrowers from purchasing property. “The banks have sent strong signals that they will respond by not passing cuts onto borrowers and we expect out of cycle interest rate rises by banks to continue,” REA Group chief economist Nerida Conisbee said in the Index. “This will be a key issue for borrowers this year, especially first home buyers and investors, with access to cheap money becoming more difficult.”

However, Rachelle Eyndhoven, commercial and residential mortgage broker and director of Sphere Finance, told Australian Broker she hadn’t noticed any reduced demand as a result of the recent rate rises. “People generally want more of a comparison of the rate but it hasn’t slowed up any buyers at all,” she said. “I haven’t had any negative feedback at all from clients in regards to this, other than they want to make sure they’re in the most competitive deal that they can be.”

For Sphere Finance, which is based on the

NSW Central Coast, December was the biggest month the firm has ever had in the business, Eyndhoven said. “I went to my first open home for the new year with one of the agents on the weekend. They had 17 groups through, and they exchanged contracts on Monday. It’s not a slow market by any stretch of the word.”

The nation’s most expensive state for property – NSW – experienced the largest decline in demand in December, according to the Index; along with Victoria, whose property markets are starting to be affected by growing concerns about apartment oversupply. Demand for apartments has dropped by more than 7% in both states.

WA and the NT, meanwhile, continue to be the markets showing the lowest demand on realestate.com.au; however, both states have experienced an increase in apartment demand.

“The result suggests that barring any surprising negative economic news or changes to the supply outlook in Western Australia, the bottom of the housing market could be close,” said Nerida.

“Tasmania continues to see elevated levels of demand and is now the strongest demand market in Australia. Relative affordability is likely a key factor driving interest.”

Consistent with the data from the REA, the Housing Industry of Australia’s (HIA’s) senior economist, Shane Garrett, predicted approvals would slow further in 2017. “The year 2016 was a record one for new dwelling commencements and this will ensure that the volume of residential building activity remains elevated over much of 2017. However we anticipate that new dwelling starts will decline over the next 12 months, with this likely to be felt on the ground towards the end of this year,” he said.

25

PROPERTY DEMAND BREAKDOWN

Levels of demand for property, January 2017

Victoria saw the largest decline, driven by low levels of demand for both houses and apartments

New South Wales followed closely, suggesting the housing boom may be over, or at the very least slowing quickly, in both Sydney and Melbourne

Tasmania, New South Wales and Victoria continue to see the highest levels of demand in Australia

Western Australia and the Northern Territory are seeing the lowest levels of demand

WHAT GOES UP MUST COME DOWN‌

National demand for property, 2013–2016 240 220 200 180 160 140 120 100

1/12/16

1/10/16

1/8/16

1/6/16

1/4/16

1/2/16

1/12/15

1/10/15

1/8/15

1/6/15

1/4/15

1/2/15

1/12/14

1/10/14

1/8/14

1/6/14

1/4/14

1/2/14

1/12/13

1/10/13

1/8/13

1/6/13

1/4/13

60

1/2/13

80

Source: REA

26

MARKET WRAP FINANCIAL SERVICES

SEDGWICK DUCKS THE ISSUES WOULD-BE FINANCIAL PLANNER BANNED FOR CHEATING ON EXAM The Financial Planning Association of Australia (FPA) has expelled a member for cheating during his final attempt at the Certified Financial Planner (CFP) certification exam. The Conduct Review Commission (CRC) found Shylesh Sriranjan of Melbourne guilty of breaching the FPA’s Code of Ethics and Professional Practice on 21 December 2016 by using information obtained from another exam candidate during a CFP certification exam, by means of swapping exam papers.

The CRC, an independent body put in place to ensure members are held accountable for misconduct, has responsibility under the FPA Constitution and the FPA Disciplinary Regulation for determining disciplinary actions brought by the FPA against members.

Dante De Gori CFP, CEO of the FPA, said the CRC played a vital role in regulating the conduct of FPA members and upholding the highest ethical standards within the financial planning profession.

“Our world class Code of Professional Practice is a key component of our Professional Framework that fosters high professional standards and consumer protection. Any breach of the FPA Code is taken very seriously as it undermines the reputation of all members.

“The CRC has deemed this expulsion to be appropriate for the protection of the profession, particularly its public standing and the confidence of the public in its members. Expulsion from FPA membership includes loss of access to a number of benefits.”

The CRC is also currently determining sanctions with respect to Darren Tindall of Orange, NSW, who was found to have engaged in misleading, deceptive, dishonest and fraudulent conduct to obtain life insurance for a client who was otherwise unlikely to obtain it; and committed a serious breach of privacy involving a number of client records.

An announcement on the CRC’s determination regarding Tindall’s professional standards breach will be made in the next few months.

Stephen Sedgwick’s Issues Paper on the review into retail banking remuneration has suggested there is no ban in sight for sales incentivisation of bank staff IN HIS Issues Paper on Remuneration in Retail Banking released on 17 January, independent reviewer Stephen Sedgwick AO has conceded that banks need to reduce the emphasis on product sales if customers’ best interests are to be upheld.

However, there is no indication that sales incentives will be banned, despite the banks’ controversial approach to the way their staff are paid.

The paper on the remuneration review, one of three commissioned by the Australian Bankers’ Association in seeming response to calls by Labor, the Greens and One Nation for a royal commission into bank misconduct, explains how bank tellers are paid bonuses based on the number of financial products they sell, including loans, credit cards and bank accounts. It reveals that the average bank teller is paid a fixed wage, which is topped up with “variable reward payments” that can reach $10,000 a month. These payments are rarely disclosed to a customer when they sign up for a product, and consumer groups fear that customers may be pressured to buy unsuitable financial products.

Reports by whistle-blower banking staff have provided shocking revelations about the banking sales culture, with one teller reportedly encouraged a customer to open nine separate bank accounts to help the branch meet a sales target. A second teller was then “reprimanded” for helping the customer close the other eight “unnecessary” accounts, according to the paper.

The paper also reveals that credit cards are some of the products allegedly forced on customers to meet sales quotas – whether the customer needs them or not. “If I am not on my numbers by 2.00pm I know I will have to have a performance conversation,” revealed one bank employee.

Another said, “I know that if it is Thursday and I haven’t made my target by Friday I will be performance managed on Monday”; while a third teller said they feared for their job because they were not selling enough products. “If I do not meet my daily sales target I have to explain how I will catch up at morning meetings of the team. I am behind in sales of wealth and insurance products and need to catch up to keep my job.”

Despite these claims, Sedgwick said he had found no clear evidence that sales commissions were creating “such significant systemic risks of poor outcomes for retail banking customers as would w ­ arrant the outright banning of product-based payments”.

His “tentative” finding, pending further investigation, was that “some banks should re-examine elements of their present practices, and I concur with those who believe it is appropriate to reduce the emphasis on product-based payments whenever possible”.

Sedgwick also addressed the relationship between banks and intermediaries, saying that industry risks were “amplified” through the use of accelerators such as larger commissions for greater volumes of sales through the broker channel, and that the banks’ reluctance to move away from commission-based arrangements suggested that “the risk of commission-related mis-selling was not insignificant”.

“Indeed, data was presented to the review that suggested that third-party mortgages are likely to be larger, paid off more slowly, and more likely to be interest-only loans than those provided to equivalent customers who dealt directly with bank staff,” he said.

However, he added that this data was “suggestive rather than conclusive” given the fact that mortgages needed to satisfy a bank’s credit assessment and responsible lending requirements at all times.

With the growth of the third party market segment, Sedgwick said brokers provided a service valued by mortgage holders. Thus, any move to eliminate or reduce commissions in Australia would need to maintain a competitive balance.

Another area of risk was that while banks implemented risk mitigation devices to protect against mis-selling by their staff (including compliance checks and performance management), they were not employers of third party channels and thus may not have as many options available to combat improper behaviour, he said.

“Usually banks use contractual terms to enforce appropriate behavioural norms, which in practice may be enforced more readily in a franchise or profit-sharing model than otherwise.”

With ASIC currently reviewing the mortgage broking industry, Sedgwick said the retail banking review would examine ASIC’s report once it was published to gain further insights on the matter.

Sedgwick called for further information on a number of areas related to third party channels and asked for submissions on a series of questions related to the banks’ third party commission structure.

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PEOPLE HELPING STARS TO SHINE Australian Broker hears about how a bank is making a world of difference to young Australians with university studies in their sights

program at Monash University had she not received the support. “So $5,000 was enough to get the family over the hurdle of getting her to go to university, and once she was there she would be able to continue,” he says.

According to Johanson, transitional problems are one of the contributors to lower participation rates in tertiary education among students from regional areas. “Typically, they’re kids from the regions who have got an entry to a university where they are going to have to travel to go to that university … they’ve done academically very well and they will typically be from families that have got some financial issues.

“It’s a support that lets them have a bit more flexibility, or means they don’t have to get another part-time job … it’s all about helping them make that transition.”

“For these people, not to get the chance to go to university … is a great waste” Time to thrive

Robert Johanson, chairman, Bendigo and Adelaide Bank

IMAGINE BEING a 17-year-old in regional Australia. You’ve topped your classes in high school and gained a place at a university in the big smoke, but there’s just one thing holding you back: money.

This is where Bendigo and Adelaide Bank’s Scholarship Program is making a big difference.

The program gives financially disadvantaged yet academically outstanding students the opportunity to access tertiary education, with many applicants making the transition from country towns to the city.

Since its beginning, when it supported one student, the program has grown exponentially. As it enters its 10th year, it now supports 468 students and is worth more than $5.4m.

Robert Johanson, Bendigo and Adelaide Bank chairman and deputy chancellor at the University of Melbourne, says the consistent growth of the program over the years signals a pressing need for tertiary education funding across both regional and metropolitan Australia.

“Our work with universities and Australian youth continues to improve outcomes for young people and their communities. Many of them are from regional areas where they face extra costs to achieve their goals.

“Today, it’s the bank’s most financially and socially significant contribution to education,” he says.

From country to city The bank’s scholarship award value is $5,000 for the student’s first year of study but may be renewed for a second year, subject to their academic performance.

“We’ve also got a lot of the community banks involved in this, so they’re offering support to kids from their areas, and it’s grown into something quite large,” Johanson says.

He recalls one case in which a scholarship recipient from East Gippsland would have had to give up her place on a coveted medical degree

Jeffrey Tho is a shining example of the difference a scholarship can make to a young student’s life.

Receiving a scholarship in 2009, Tho moved from Maiden Gully in Victoria to study at the University of Melbourne. He went on to graduate in 2013 with a Bachelor of Dental Science degree (with Honours), winning many academic prizes and awards along the way and representing Australia in badminton in the 2010 and 2014 Commonwealth Games.

“To this day I still remember the benefit of the Bendigo and Adelaide Bank Scholarship Program,” says Tho, who now works full-time in a private dental practice in Ballarat.

“The money from the scholarship contributed to university fees, equipment and textbooks, which are a costly expense.

“It really does help regional students with many things that metro students wouldn’t have to think about.

“The scholarship allowed me to reduce the number of hours I had to work, which in turn allowed me to spend more time studying,” he says.

In 2016, the bank also officially welcomed 10 graduates into its Graduate Program, joining 13 others inducted into the 2015 program, making up a total of 40 graduates completing the two-year program.

The program enables university graduates to gain work experience in the financial services sector, and build up a skill set that complements their field of study. But Johanson says the scholarship initiative has always been about helping young people make the expensive transition from, in particular, regional areas to city-based universities. This is where the program has its roots. “Because for these people, not to get the chance to go to university – I’m a great believer in university education – is a great waste.”

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CAUGHT ON CAMERA Mortgage franchise Aussie Home Loans mobilised Aussie team members across the nation last month in support of its major charity partner, OzHarvest. Aussie’s head office as well as brokers and their team members donated non-perishable food items, making up hundreds of hampers which were packed by Aussie team members ready for delivery to those in need at Christmas.

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PEOPLE HOT SEAT

MARK DAVIS

The AMA’s Australian Broker of the Year tells us why he thinks he won the industry’s most coveted award – and about moving from banking to broking and what he would spend one million dollars on

Who or what inspired you to become a broker?

I was a long-term employee of ANZ. While there, they A allowed me to set up an investment division within the bank that really struggled to lend money during the GFC – like most lending institutions then. I wanted access to funding from multiple institutions during such a tough time, so it was a pretty simple decision to join the broker world.

ANZ taught me an enormous amount, and I am very thankful for that. However, like everything, we all need to move on sometimes, and that is why I made the decision to move.

Q

What will be the biggest disruption to the broking industry in 2017?

The biggest disruption will be the continuous noise A around lending to investors and ensuring all lenders and brokers are doing the right thing by their clients. Don’t get me wrong; this is not a bad thing. However, it will disrupt and take the focus away from banks and institutions to meet targets and service their brokers’ needs. This will hurt us all in 2017.

Q

What key quality helped you to win the Australian Broker of the Year award?

I think the will to never give up and improve each and A every day would be the one that got me over the line this year. Lending with ethics and always doing the right thing by my clients has also helped me build an amazing client base that should allow us to repeat these successful results over the next few years.

Q

What has been the toughest or scariest decision you have made during your life?

This would have to be leaving ANZ after A 21 years and not knowing that I could do the same things externally as well as internally within a protected corporate environment. I contemplated leaving ANZ for five years, but they made it far too attractive to stay, considering the loyalty we had for each other. The GFC certainly turned a lot of that around, which is also understandable during such tough times. So now I have no regrets!

Q

If you had $1m lying around, what would you spend it on and why?

Obviously this is not advice because we can’t A advise in our role, but I would use those funds to gear heavily into the top end of Brisbane and convert that $1m into $3m in four to seven years depending on the market. There are some exceptional investments there that have shown great potential after a very moderate decade since 2006. Then I would use the $3m to buy a superb holiday house next to the National Golf Course at Cape Schanck – the golfer’s paradise.

Q

14th ANNUAL

2017 Entries close Friday 17 February The mortgage industry’s biggest and most well established survey into the performance of all Australia’s major lenders is closing soon.

Who will come out on top this year?

Complete this survey today to have your say and go into the running to win a pair of Bose QuietComfort® 25 Acoustic Noise Cancelling® headphones (RRP $399).

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The results of the Brokers on Banks survey will be published in issue 17.04 of MPA magazine, out in March.

Have your say online today at www.mpamagazine.com.au.