Australian Broker 13.02 by Key Media

NEWS Banks sticking to limits Lenders have pulled back on investor loans P8

ANALYSIS A wild ride for rates? Opinion varies wildly on RBA’s next move P14

BUSINESS INTELLIGENCE Your inner entrepreneur How to recognise and nurture your natural gifts P20

FEBRUARY 2016 ISSUE 13.2

BEST PRACTICE Social savvy How social media opens new avenues of engagement P21

MARKET TALK The fight over CGT Tax proposals have divided property pundits P22

ANDREW MORELLO YBR’s Andrew Morello on the opportunities presented by a changing market P18

FORUM The cost of mentoring Should onboarding new brokers be free? P27

BORROWER SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

LENDERS

Broker benchmarking on the way P4

CIO off and running in first quarter P6

Fixing on the rise

BROKERNEWS.COM.AU

CONFIDENCE IN PROPERTY HIGH

According to the latest quarterly ANZ/Property Council Survey, those within the industry believe it will continue to be one of the national economy’s heavy lifters over the coming year. A score of more than 100 is considered positive.

EDITORIAL

SALES & MARKETING

Editor Adam Smith

Sales Manager Simon Kerslake

News Editor Julia Corderoy

150

142

Journalist Maya Breen 144

Production Editor Roslyn Meredith 142

140 134

ART & PRODUCTION

138 135 132

131

130

Design Manager Daniel Williams

131

Designer Lea Valenzuela Traffic Coordinator Lou Gonzales

118 119 111

NSW

VIC

QLD

ACT

AUS

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

Human Resources Manager Julia Bookallil

102

TAS

Marketing and Communications Manager Lisa Narroway

Chief Information Officer Colin Chan

105

Dec - 15 Mar - 16

Account Manager Rajan Khatak

Source: ANZ/Property Council of Australia

EDITORIAL ENQUIRIES

Adam Smith +61 2 8437 4792 adam.smith@keymedia.com.au

SUBSCRIPTION ENQUIRIES

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

AUSSIE BUYERS UNDETERRED

ADVERTISING ENQUIRIES

While 2015 may have been a year of upheaval in Australian real estate thanks to regulatory changes and some markets soaring while others lagged, it appears the dream of property ownership is still alive and well across the country. According to a recent survey by wealth management firm Yellow Brick Road, saving to invest in property or buy a home made up 40% of Australians’ financial New Year’s resolutions. That was well ahead of other finance-based resolutions such as to decrease debts (25%), budget (15%), save for travel (10%) and get superannuation sorted (7%). “In this current environment, you might expect to see property taking a back seat to financial aspirations such as saving and budgeting or consolidating debts,” YBR spokesperson Lyndsey Douglas said. “However, the Australian dream of owning property, and the security that comes with it, is still dominant.” With a large proportion of Australians still looking to be involved in the property market, Douglas said conditions could soon start to favour buyers. “The property market is changing rapidly, with some cooling predicted in previously hot areas,” she said. “The upside is that it might ease some of the affordability pressures faced by first home buyers as competition from other buyers declines.”

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

ASSOCIATION HAPPENINGS 4

DATES TO WATCH

MFAA TO ARM BROKERS WITH RESEARCH Some new research may soon be on hand to help brokers gauge their business’s effectiveness. The MFAA has announced its Industry Intelligence Service report, to be released in February. MFAA chief Siobhan Hayden said the report, which will be released at a series of roadshows throughout February, will give brokers hard facts as benchmarks for their businesses. “We want to dispel some of the statistics that float around the industry that lack evidence to support the claims. This MFAA report reveals the number of loans submitted, loans approved, loan values and broker incomes as averages,” she said. The association also recently announced the launch of a new intensive training course aimed at female brokers. The program, WIMBN: SOLD Leadership Development, will partner with leadership developer Gillian Fox. “Many female entrepreneurs work extremely hard yet are not always achieving their goal to make their value visible when it comes to differentiating themselves and continuing to grow their business,” Fox said.

A rundown of the next fortnight’s events

FEBRUARY

What: Advertising compliance webinar Where: Online The particulars: This MFAA webinar will cover all of the various legislative and regulatory requirements that affect all mediums of advertising brokers may engage in. It will include practical and visual examples and cover recent issues raised by ASIC in broker advertising. Gillian Fox

WHAT THEY SAID... FEBRUARY

Marsha Friedman “If you don’t have anyone managing your social media accounts, consumer questions and complaints are met with silence” P21

John Flavell “This month, we have seen investment lending increase slightly, which is very pleasing as it suggests the housing market remains robust” P22

Rich Harvey “Making changes to negative gearing often sounds good, but it’s something that’s fraught with danger” P23

10 What: Queensland Roundtable Where: Brisbane The particulars: Queensland FBAA state president Stephen Rasmussen and councillors will join brokers for a roundtable to discuss association updates and other issues impacting on brokers and their businesses.

FEBRUARY

10 What: Kickoff PD Morning Where: Queensland Cricketer’s Club, Brisbane The particulars: Dean Pearson, head of behavioural and industry economics, National Australia Bank Limited; Tim Lawless, research director, CoreLogic RP Data; and Vicky Devine, MFAA business development manager QLD, will present facts and figures to help brokers kick off the year, on top of the latest trends in housing.

REGULATORY ROUNDUP 6

BUSY START FOR CIO

WORLD NEWS

The Credit and Investments Ombudsman has had a busy quarter. In the first quarter of 2015/16:

20, 756 CIO had 20,765 FSP members (previously 20,475, up 1.4% from the previous reporting period)

60.8% 60.8% of closed complaints provided some form of remedy for the consumer, and 10.5% resulted in a decision in favour of the FSP

108 days

48 days

On average, a complaint was open for 108 days (previously 97 days). The median number of days it took to resolve a complaint was 60 (previously 61 days)

The median number of days it took to resolve a financial hardship complaint was 48 (previously 49 days); 32.3% (previously 27.6%) of financial hardship complaints were closed in less than 30 days

UNITED STATES OF AMERICA REGULATORS TAKE AIM AT BANKS

Source: CIO

PROPERTY SCAMMERS GETTING BRAZEN Property fraud is becoming more sophisticated in the digital age, but it can also be surprisingly brazen. Such was the case with an attempted scam that saw fraudsters access the database of WA’s Peel Realty Pty Ltd, trading as Raine and Horne Mandurah; change the email and phone contact details of a South African-based homeowner; and then pose as the homeowner in an attempt to sell the property. WA Consumer Protection was alerted of the scheme, which ultimately failed, by the

agency. While WA Consumer Protection acting commissioner David Hillyard commended the agency’s action, the body still issued a reprimand for failing to catch the scam sooner. “We commend the agency for their quick action once the scam was discovered, as well as their cooperation with the police investigation, but the disciplinary action was taken in order to emphasise the importance of real estate and settlement agencies detecting these scam attempts at the very beginning and not later in the process,” he said.

Supervisors from the US Federal Reserve, the Office of the Comptroller of the Currency, and Federal Deposit Insurance Corp. will be paying “special attention” to banks’ “rapidly growing” commercial loan portfolios, as well as the safeguards lenders have in place, Bloomberg has reported. In a joint letter from the three regulators, the agencies said they were ready to impose tough new rules should banks be found to have dangerously lowered their credit standards. “Financial institutions should maintain underwriting discipline and exercise prudent risk management practices that identify, measure, monitor, and manage the risks,” the regulators said in a statement. According to Bloomberg, banks that have seen substantial growth in commercial loans, or those whose expansion strategies call for such aggressive growth, will find themselves under the most scrutiny. Commercial real estate values in the US have skyrocketed since 2010 in the midst of low-cost loans, foreign investment and lenders’ quest for yield in a low interest rate environment.

LENDER UPDATE 8

BY THE NUMBERS

LENDER ROUNDUP

A rundown of the fortnight’s policy and price changes

PRODUCT LJ Hooker Home Loans LJ Hooker launches new white label offering with Advantedge. LJ Hooker’s Home Loans Connect product comes with an annual fee of $120. However, customers will benefit from no upfront fees and no application, valuation or legal fees. In addition, customers get free EFTPOS and ATM transactions via NAB and rediATM networks.

19.44%

PRICE

Fixed rate home loans accounted for 19.44% of all loans written throughout the month of December Source: Mortgage Choice

BANKS STICKING TO THEIR LIMITS Despite a small month-on-month increase over November, the annual growth in loans to property investors remains well below the 10% limit mandated by APRA. According to the most recent banking statistics from the regulator, the value of property investment lending by Australian banks rose to $517.4bn over November. That represents a 0.14% increase since October, which had the lowest amount of investment lending by Australian banks since February 2015. While the total value of investment loans may have increased over the month, the annual growth in investment lending decreased during the year to November. According to APRA’s figures, investment lending grew by 3.32% in the 12 months to November, a fall from the 4% year-on-year growth recorded in October. The latest figures from APRA also show that three of Australia’s Big Four banks have managed to bring their investment lending books in line with the regulator’s requirements. According to the November figures, NAB is the only major lender that saw its investment loan book grow by more than 10% in the year to November. In the 12-month period, NAB’s investor lending grew by $10.6bn, a 12% yearly rise.

FAST FACT

AMP Drops interest rates across its variable and fixed rate loans for new customers, effective 18 January 2016. The AMP Essential variable rate loan will drop by 30bp to 4.08% p.a. (comparison rate 4.10% p.a.). The Basic three-year fixed rate will drop by 27bp to 4.28% p.a. (comparison rate 4.32% p.a.). The variable rate on new investor property loans for the Basic loan will reduce by 40bp to 4.57% p.a. (comparison rate 4.61% p.a.). The Basic three-year fixed rate for new investor property loans is reducing by 45bp to 4.57% p.a. (comparison rate 4.61% p.a.). ING Direct Announces new owner-occupier Orange Advantage loans with an LVR of 80% or less will not be subject to the variable interest rate increase of 0.18% previously communicated. In November, the challenger bank announced that, effective 15 January 2016, it would increase the variable interest rate on owner-occupier Orange Advantage offset home loans to 5.02%. Further, the variable interest rate for ING owner-occupier Orange Advantage loans with an LVR of 80% or less will be reduced by 6bp to 4.23% (comparison rate 4.43%). This applies to loans of $150,000 or more.

$32.5bn The net value of switching of loan purpose from investor to owner-occupier over the period from July 2015 to November 2015

Source: RBA

Suncorp Bank Drops interest rates on both its owner-occupier and investor Home Package Plus products by 1.55% p.a. and 0.35% p.a. on standard variable and three-year fixed loans respectively, effective immediately. The Home Package Plus annual package fee will also be waived for the first year (normally $375) for new Home Package Plus customers taking out new lending of at least $150,000.

BEST PRACTICE a clear mission for achieving it will act as a discernible path on a reliable map. Identify your organisation’s brand, needs and priorities. This is for those who want to better bond their own name/brand to another brand/organisation. What’s the connection? If your company’s brand is about making healthy, tasty treats, and you are developing a personal brand centred on music and art therapy, there could be a mission disconnect. Or you simply haven’t found the sensible way to make the underlying connection.

HOW TO IMPROVE YOUR ‘BRAND’ THIS YEAR Leadership consultant Pamela Green shares her seven steps to kick-starting an improved business PERHAPS MORE than in any other time in history, in 2016 your name is your brand, says Pamela J Green, a business and branding expert. “I think most of us get this concept – we live in a celebrity-obsessed society, so we understand how a person’s name can also be their brand,” she says. “Social media also reinforces this idea. Our names are usually one of an infinite chorus of brands. People can see who liked a New York Times article, who criticised a political position, and who recently became engaged to whom. Most people today meet our name/brand before actually – or ever – meeting us in person.” While many may see this as cold and impersonal, Green says it could be an opportunity to more objectively improve who we are – whether on a personal or business basis. We’re still in a timeframe this year in which people are resolved to improve themselves on multiple levels, from working on debt issues to spending more time with loved ones to improving their health. Unfortunately, failing at your New Year’s resolutions –a year-long endeavour – is so common that it’s a cliché, as comedian John Oliver says. Unfortunately, such resolve has earned a bad reputation for having an extraordinarily high

failure rate. So, in order to improve your brand this year, whether you are leveraging a business or yourself, it’ll likely behoove you to actually improve your habits, perhaps in a self-help manner, Green says. “Branding is sort of an all-encompassing phenomenon; an improvement in one area, such as health, often benefits other aspects of your life,” she says. “Resolving to wake up early and hit the gym, for example, may help prevent late-night bad habits, such as snacking on junk food. Likewise, in business, giving time or money to a charity helps your organisation’s cachet.” But working on one’s brand isn’t as straightforward as waking early and hitting the gym. Green, author of the new book Think Like a Brand (www.pamelajgreen.com), offers a clearer plan by summarising her seven steps to improving your brand. Begin by writing your mission. What drives you? To know this is to help you determine what success means in your life. Football hall of famer Michael Strahan, for example, knew that he didn’t want to disappoint his parents. Whatever drives you, Green says,

Conduct your brand research. Determine the future skills needed for what you want to do, and research the industry and businesses in the industry that have success in your ideal future. For the more personal branding perspective, ask yourself, “What are the long-term habits I need to adopt in order to be the person I want to be five years from now?” That could be learning a new language or adopting a new diet. Create your brand template. If your brand were a can on a shelf, would it be dented and dishevelled and would the label be torn? If you ignore, reject or skip this step, Green says, then you’ve volunteered to live the life you have instead of the life you want. Grow strategic visibility. In a room or a business meeting, would you describe yourself as a church mouse or a brave eagle? Even if your brand emphasises a sort of low-key class and subtlety that already features an enviable client who’s who list, you don’t want your image to be diminished. Identify your brand adjacencies. While building your brand today, do not dismiss what it could be a decade down the line. You likely have unidentified talents. Or your brand/business may be utilised in a way you haven’t yet considered. Scale your brand. Every brand needs to remain relevant to remain sustainable. To be sustainable, your brand needs to be scalable. Your ability to deliver consistent performance at a high level is what leads to brand sustainability. Assess who will help you be accountable for the achievement of your goals and the continued sustainability of your brand. On a personal level, that person may be a personal trainer; businesswise, it could be a promising employee. “This is a process that has been tested and proven, but it can work only if you’re willing to follow through on your goal,” Green says. “You cannot give up on your passion!”

ANALYSIS ASIC SHEDS LIGHT ON REMUNERATION REVIEW Commissions are a form of conflicted remuneration, ASIC has said ahead of its forthcoming remuneration review, but the regulator insists it has no firm stance on commissions going into the review. The government has tasked ASIC with reviewing “misaligned remuneration incentives” in mortgage broking in its response to the Financial System Inquiry, and Michael Saadat, ASIC senior executive leader – deposit takers, credit and insurers, says this is the first comprehensive review of remuneration in the mortgage broking sector, so the regulator will go into the review with no preconceived biases or ideas. “ASIC has not looked at commissions specifically so we do not have any data to indicate whether commissions are causing brokers to act in a way which is not beneficial for consumers,” Saadat told Australian Broker. “We don’t have that data so this review will be an important part of the process to get the data on what role commissions are in fact playing. Commissions are a form of remuneration that has, in other contexts, seen some concerns arise – as you pointed out in the life insurance context. However, I don’t think [ASIC] would say that commissions on their own are the only factor that can cause poor outcomes for consumers – there are a range of things, including things like poor culture.” The fact remains, however, that the concept of commissions is undeniably a form of conflicted remuneration, according to Saadat. “Although we haven’t reviewed mortgage broker commissions in this way previously, commissions are a form of conflicted remuneration, so the question is whether, as a form of conflicted remuneration, they are a cause for concern. That will be one of the things that we examine as part of our review. “If a broker is being paid to behave in certain way by a lender, then we are interested in exploring how that works in practice and whether it does actually affect the broker’s recommendation in a meaningful way.” Saadat also confirmed that the review would cover more than just commission structures. “The concerns which were raised in the Financial System Inquiry weren’t only about commissions, they were also about ownership structures in the industry and whether smaller lenders are at a disadvantage in accessing consumers through broker networks,” he said. “So we are interested in exploring a range of issues to see what the data tells us.”

TACKLING REGULATION HEAD-ON

With 2016 set to be a year shaped by ASIC reviews and ongoing regulatory surveillance, the chief executive of the MFAA says the mortgage industry needs to be realistic, and prepared REGULATION IS set to be a main theme characterising the Australian mortgage market in 2016. Last year, corporate regulator ASIC announced it would be undertaking two reviews of the mortgage broking sector this year – one to investigate interestonly lending through the third-party channel and, more importantly, one to investigate remuneration and ownership structures in mortgage broking. The regulatory crackdown should not come as a surprise following the extensive reviews into the financial planning and advice sectors, which culminated in the Future

of Financial Advice (FOFA) reforms. However, Siobhan Hayden, chief executive of the MFAA, said it also shouldn’t be taken lightly – despite how differently the two horizontal industries operate. Be realistic and be prepared While Hayden – and many other mortgage industry leaders – don’t believe the reviews will result in anything as far-reaching and impactful as FOFA, she says the MFAA will be heading into these reviews with a transparent, open-minded and proactive approach. Therefore the MFAA has put together a “positioning

document” to release to the government and regulators. The document, according to Hayden, details the history of the mortgage broking sector and explains how the modern mortgage broking sector operates. It will also be a chance for the association to get on the front foot and address expected concerns that ASIC and its forthcoming reviews may highlight. “I am quite practical in terms of the government isn’t going to spend all this time and conclude that everything is perfect,” Hayden told Australian Broker. “What is it they are going to identify as a concern? We need to be

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ahead of that bell curve. “The positioning document we are working on at this point in time is really detailed – there is no assuming something won’t be an issue, so we don’t discuss that. It details every part of our remuneration model and it details every part of our growth from 2008 to now – so pre-NCCP to post-NCCP.

window will be done. “This isn’t something we had to do; it is something I am getting on the front foot with.” There’s a lot on our side However, while Hayden says the review is going to be critical of the mortgage broking industry, she also says there is a lot that is playing on their side. “ASIC has been clear

they document. If it is not public then sometimes they can make assertions that are not as robust. That is in our favour,” she told Australian Broker. “Michael Saadat will also be leading the inquiry from ASIC’s perspective. That is also really great for our industry because [the MFAA] meets with him quarterly anyway. He has quite a good understanding and grip on our sector and certain things such as our tribunal and membership being compulsory. He is more in tune with the attributes we have so I am happy with that.” The scrutiny of the mortgage broking sector may have been spearheaded by the public’s tendency to lump financial planning and mortgage broking together – and by extension the controversy around the financial advice sector – but Hayden says the fact does remain that the two industries operate very differently, particularly from a selfregulation point of view. “We are seen under one big financial services umbrella, and given the debacle at a consumer end with financial planners, no one wants this on their watch. I do think it is just that sense of shifting the inquiry along to ensure it is fairly robust across all financial services. I think that is OK, and I think that is expected. “However, the mortgage broking industry has

“I am quite practical in terms of the government isn’t going to spend all this time and conclude that everything is perfect” Siobhan Hayden, MFAA “Some of the visuals or associated feelings of our sector may be driven from pre-NCCP, so we need to take [the government] along that journey and educate them. I think we have got about a six-month window to influence. By June [2016] the influence

about the fact that they will report on their inquiry in a public domain; sometimes they don’t do that. That is a good thing from my perspective. The reason being that they will need to be substantive about the claims that they make and the allegations that

effectively compulsory membership to us or the FBAA. [The regulators] don’t know who is operating in the financial advice space because they don’t have to belong to a professional body – so that fact is also on our side,” Hayden said.

ANALYSIS A WILD RIDE FOR RATES? Opinion varies wildly on the RBA’s course for 2016 ONE THING that never seems to change is Australian economists’ love of interest rate prognostication. The Reserve Bank hasn’t given rate commentators much to talk about of late, holding the official cash rate at 2% since May of last year. But the Reserve Bank has shocked before. And as the housing market slows, the Aussie dollar declines and the economy becomes sluggish, there seem to be as many opinions about the RBA’s next move as there are interest rate soothsayers. Rates heading down? Shane Oliver, chief economist at AMP Capital, believes recent global economic instability brings a rate cut of 0.25% into play for this year. “The latest bout of global growth worries warns that the global environment Australia faces remains messy. So, while rebalancing

away from mining will continue to help, we may face another year with growth stuck around 2.5%,” Oliver said. “Ongoing commodity price weakness means ongoing pressure on the budget deficit, points to more downwards pressure on the Australian dollar and more pressure on the RBA to cut interest rates again. Expect the Australian dollar to fall to around US$0.60 by year end and the RBA to cut the cash rate to 1.75%,” he said. The main global concerns, according to Oliver, are uncertainty regarding the Chinese economy, wariness about the Fed raising interest rates, and the impact of a rising US dollar and falling Chinese Renminbi. 2016 has also seen a bad start to the share markets. Share markets around the globe have seen sharp declines so far this year, says Oliver, with US shares down

5.2%, Eurozone shares down 6.2%, Japanese shares down 9.5%, Chinese shares down a significant 14.6%, and Australian shares down 6.8%. Oliver says these latest falls have taken global shares back to around the lows seen during the second half of last year. In addition, commodity prices are down further, with the oil price falling to its lowest since 2009. However, Oliver says while we should expect weak growth and accommodative monetary policy to hang around for a bit longer, there should be no concern about a global recession. “But while risks remain high in the short term there are several reasons not to be too concerned. In other words, if we do go into a bear market in developed market shares it is likely to be relatively shallow, unlike, say, the GFC falls of 50% plus, and we continue to see shares

having a better year this year than last,” Oliver said. Global ratings agency Fitch seems to agree with Oliver. At the very least, Fitch said rates are unlikely to head north. “Fitch does not anticipate an increase in the RBA policy rate in the near

future, as the effect of increased capital charges on the overall funding costs for banks has already led to an increase in lending rates,” the ratings agency said. And as economic pressures mount, the RBA will be open to cutting rates further, Fitch said.

RATE TAKES There are as many takes on interest rates as there are economists Rates heading down

Shane Oliver, AMP “Ongoing commodity price weakness means ongoing pressure on the budget deficit, points to more downwards pressure on the Australian dollar and more pressure on the RBA to cut interest rates again. Expect the Australian dollar to fall to around US$0.60 by year end and the RBA to cut the cash rate to 1.75%.”

Warren Hogan, ANZ “The strength of support to labour-intensive sectors is likely to wane in the first half of 2016, resulting in a softening in jobs growth and no obvious inroads into unemployment. Our view remains that this will ultimately prove too uncomfortable for the RBA, and a little more monetary policy support will be provided by mid-2016.”

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said a rate cut could be headed our way mid-year. “In the near term, labour market conditions should remain quite good, with some chance the unemployment rate could decline a little. But the strength of support to labour-intensive sectors is likely to wane in the first half of 2016, resulting in a softening in jobs growth and no obvious inroads into unemployment. Our view remains that this will ultimately prove too uncomfortable for the RBA and a little more monetary policy support will be provided by mid-2016,” Hogan said.

“The RBA is reluctant to cut rates, due to the already heated housing market; however, if weak external demand persists, combined with soft inflation and weaker wage growth, it may bow to pressure for a rate reduction in 2016.” HSBC chief economist

Paul Bloxham also expects soft economic conditions to trigger another cut. “The RBA seems comfortable that there will be sufficient momentum in the local economy to keep inflation on target, despite the downside surprise in the Q3 numbers … Like

the RBA, we also remain optimistic on growth, but given the low starting point for underlying inflation we think the RBA may struggle to keep inflation on target without extra stimulus,” Bloxham said. ANZ chief economist Warren Hogan agrees, and

The RBA’s take The Reserve Bank itself does not seem averse to the idea of another cut. The RBA’s December board meeting minutes revealed that the board was open to further easing if conditions necessitated it. “Members judged that the outlook for inflation may afford some scope for a further easing of monetary policy should that be appropriate to lend support to demand,” the minutes read. “The Board would continue to assess the outlook, and hence whether the current stance of policy would most effectively foster

sustainable growth and inflation consistent with the target.” Within Australia, the RBA expressed some concern about wages, with growth remaining weaker than the Bank would prefer. “Wage inflation had remained subdued in the September quarter, consistent with spare capacity in the labour market and the forecast for a prolonged period of weak wage growth,” the minutes read. “The latest data suggested that wage growth had been little changed in the household services sector, where employment growth had been strongest.” Outside of Australia’s shores, the board noted current economic conditions in Asia had been subdued. “Members commenced their discussion of the global economy with the observation that growth in Australia’s major trading partners had picked up in the September quarter, driven by an increase in growth in some Asian economies following weakness in the previous quarter. “Overall, however, conditions across the Asian region, including in China and Japan, had been weaker than expected this year.”

Rates heading nowhere

Joe Sirianni, Smartline “I don’t think there’s anything at the moment that really makes a rate cut a necessity. I think a long period of stability would be the best thing, and I really can’t see there being a reduction anytime soon.”

Bill Evans, Westpac “Despite markets confidently expecting that the Reserve Bank would cut rates by February, Westpac has remained firmly of the view that the Bank will remain on hold throughout the second half of 2015 and the whole of 2016.”

ANALYSIS RBA KEEPS US GUESSING

The Reserve Bank has shocked economists before. In May 2013, an AAP survey of 13 economists found that none of them expected the RBA to make a rate move at its May meeting. The Bank ended up cutting the official cash rate by 25bps to 2.75%. A Credit Union Australia consumer survey in February 2013 found that a third of Australians actually expected the Reserve Bank to hike rates in 2013. In May 2012, the Bank had doubled economists’ expectations by cutting the cash rate by 50bps. A few months earlier, in February 2012, economists had been certain the Reserve Bank would cut rates at its first meeting of the year. When it chose instead to leave rates on hold, 1300 Home Loans founder John Kolenda accused the Bank of “courting disaster”, and REIQ chief executive Anton Kardash said small businesses would be hurt by the decision. And perhaps the RBA’s best-remembered surprise rate move came on Melbourne Cup Day in 2011, when after a series of hikes the Bank began its current easing cycle.

While the board noted there had been some improvements in China and Japan, it said economies

factors and that weak external demand was likely to have negative effects on many economies in the

had generally edged higher in both the advanced and emerging economies, but remained below most

“Given the low starting point for underlying inflation, we think the RBA may struggle to keep inflation on target without extra stimulus” Paul Bloxham, HSBC across Asia could struggle for some time. “In the rest of East Asia, GDP growth picked up in the September quarter after a soft June quarter outcome. Members noted that this stronger growth could reflect temporary

region for some time.” The Reserve Bank also noted sluggish growth in the US and European economies. “Growth in the United States and the recovery in the euro area had continued. Core inflation

central banks’ targets,” the minutes stated. Staying stagnant But many commentators are convinced the conditions the RBA spoke about as necessitating further easing are unlikely to

WHAT DO THE MAJORS THINK? Major bank predictions for 2016’s cash rate Down

No change

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come. Among those who believe rates will stay put is Smartline head Joe Sirianni. “I don’t think there’s anything at the moment that really makes a rate cut a necessity,” Sirianni said. “I think a long period of stability would be the best thing, and I really can’t see there being a reduction any time soon. While he would prefer no movement, Sirianni said he could potentially see the need for a rate rise towards the end of the year and suggested it could be the right time for borrowers to consider locking in their current rates. “I think we’ve definitely hit the bottom of the yield curve for interest rates, and

No change

I would suggest people start looking at locking in a rate and giving themselves some certainty. “It’s about mitigating risk. If you’re an investor you’ve got your rent locked in for the next 12 months. Why not lock in your interest rate for the next two or three years? Your rent is more than likely going to increase and you’ll improve your cash flow.” Despite the upheaval seen in the investor lending market over the past year, Sirianni said as long as rates stayed at similar levels to what they are now he can’t see investors deserting the market. “I thought this year might be the time where the owner-occupiers and first home buyers come back a

bit, but if you look around, property still looks like a pretty good investment at the moment. “The share market’s pretty volatile right now, and you’re not getting much benefit in a term deposit, so I can’t see why people are going to desert property. It won’t be the frenzy it was last year, but the investors will still be there.” Westpac chief economist Bill Evans also believes the Reserve Bank will remain sidelined in 2016. “Despite markets confidently expecting that the Reserve Bank would cut rates by February, Westpac has remained firmly of the view that the Bank will remain on hold throughout the second half of 2015 and the whole of 2016,” Evans said. And some commentators even believe 2016 could see an upward move by the RBA. Following the US Federal Reserve’s long-mooted move on rates, some economists have tipped Australia as next in line for a rate hike. According to a report by The Sydney Morning Herald, Australia could follow the US and the UK in lifting the official cash rate before the end of 2016. The report quoted Bank of America Merrill Lynch as saying the Reserve Bank could look to remove accommodative policy by the end of next year. Market Economics’ Stephen Koukoulas was more hawkish, The Herald said, claiming there should be an “interest rate hiking bias at least” by June this year.

No Change

COVER STORY AUSSIE UPBEAT ON PROPERTY Results from the January WestpacMelbourne Institute Survey of Consumer Sentiment have revealed more people think now is a better time to buy a house than any time since midway through 2015. The Time to Buy a Dwelling Index in the survey rose by 13.9% over January to 113, up from the 99.2 recorded in December. January’s figure is the highest score the index has recorded since May 2015 and is just 1.4% lower than it was in January last year. Westpac chief economist Bill Evans said the size of the month-on-month increase pointed to the likelihood of a more positive outlook on the housing market. “The sharp increase in the Index in January will reflect some seasonality but the move is so large that we can only conclude that this print may be signalling some improving optimism in the housing market,” Evans said. “Most of the improvement in the national Index was driven by a sharp improvement in New South Wales which has regularly posted the weakest readings amongst the states in recent times. For this reason it is best to be cautious but nevertheless encouraged by this result,” he said. The increased level of positivity towards the nation’s housing market is also shown by a more optimistic outlook on the direction of property prices. “This improvement in the outlook for housing was also indicated in the Westpac Melbourne Institute Index of House Price Expectations. The Index increased by 21.1% in January from 103.7 in December to 125.8 in January,” Evans said. “The Index is still down by 10.2% over the year but this read represents the best result since September 2015.”

BROKERS CAN BENEFIT FROM SLOWING MARKET YBR’s Andrew Morello on the shifting property market and its opportunities for brokers ANDREW MORELLO knows property. The winner of the first season of the Australian version of The Apprentice, Morello has been involved in 1,000 real estate transactions. He’s a keen investor and has been dealing in property since he was a teen. As head of business development at Yellow Brick Road, he also knows brokers. And while 2016 may be a slower year for Australian property growth, Morello believes opportunities for brokers still abound. While APRA’s crackdown on investment lending may have taken some of the heat out of the investment market, Morello said it had also created new opportunities as new categories of buyers had become active. “What I’ve seen is the mum and dad suburban investor has dropped off, but the positive for brokers looking at ‘How does this affect me?’ is that

people who were willing to overcapitalise and pay more than what properties were worth,” he said. “Twelve or so years ago when I got into property I was one of the ones who loved the real boom times like we’ve just had, but now I’m a bit older and bit more experienced and I realise that the slow and steady path is probably better for everybody.” While some people who step away from the market in 2016 will do so because of changes to investment lending policies, Morello thinks that might actually be a good thing. “For mum and dad investors who are just starting out, a lot of them can get caught up in the hype and that’s when they get into trouble. The more experienced investors will take a better look at things and if the numbers don’t stack up they’ll walk away. “It can be hard to educate the inexperienced

“I reckon the gold is in the guys who you were doing the finance for two or three years ago” it’s brought some of the first home buyers back into the market who were just getting blown out of the market by the mum and dad property investors. The second thing it’s brought out of the market is the astute investor, that 50–65-year-old baby boomer who knows what they’re talking about,” he said. Morello believes those astute investors who will return to the market have abstained from buying in recent years as they were put off by people overextending themselves. “The past few years the really shrewd investors have been frustrated by how much heat was in the market and having to compete with so many

ones, so sometimes the government is forced to come up with these sorts of strict guidelines instead. “If the changes keep people out of the market that are going to overcapitalise themselves, and encourage activity from the investors that really know what they’re doing, and stimulate the market in the right way, then that’s a good thing.” While he thinks many first-time and inexperienced investors will step back this year, Morello, who has just released an e-book aimed at educating investors, says there are still opportunities out there for those who want to take the first step.

“There are still options out there for first-time investors. A lot of the changes the banks have done are tightening serviceability requirements, but they’re still looking to lend. “Interest rates are low and the economy looks like it will be stable for the next 12 to 18 months, so I think it’s a great time to start if you have a plan. “I’d do my calculations and see what I could afford, and make sure I know I could afford it if the property happened to vacant for a couple of months. I’d fix in my rate now so I’ve got a good rate for the next three to five years, and I’d make sure I know the current equity situation I might have in any other properties.” While many first-time investors might be waiting to find what they think is the right property before taking the plunge, Morello suggests coming at it from a different angle. “The other thing I’d be doing is making sure all my ducks are in a row before I go to a lender. Make sure you can show you’ve got savings, that you’re creditworthy, you can show you’ve been working in one place for 12 months, and you know how much you want to borrow. “For me the property is often the last link in the chain. Make sure you know

what your situation is and plan it so when an opportunity comes along you’re ready to take it.” How brokers can benefit As the lending landscape changes, savvy brokers are set to benefit, Morello said. “I’m pretty lucky that I get a chance to work with brokers under the Yellow Brick Road banner, I get the chance to work with brokers who work under our Vow channel, but I also get invited to work with brokers all around the country,” he said. “The great thing about that is I get to see best practice.” And best practice in this shifting market, Morello said, is being proactive about targeting client opportunities. “If you are a current mortgage broker and have a business that’s been around for quite a while, I personally would be going back to my old investors. I reckon the gold is in the guys who were buying investment properties off you and you were doing the finance for two or three years ago. [They] got fed up with the market because it was getting overpriced. The heat has come out of it now, so that’s a very positive conversation to have with your clients,” Morello said. In addition to going back to existing clients, Morello said it was time for brokers to get back to prospecting for new clients. “Put on a first home buyer seminar. Contact a real estate agent and ask if you can do a seminar, or a first home buyer brochure. Get out there and speak to people again,” he said. Morello said a booming housing market had meant that many brokers were used to a steady influx of clients. As this is fading, it’s important to get back into the habit of prospecting. “Clients have been coming to them. As things start slowing down, they need to be proactive rather than reactive.”

BUSINESS INTELLIGENC 4 SIGNS YOU’RE STIFLING YOUR INNER ENTREPRENEUR Author Pete Gilfillan on how to recognise your entrepreneurial gifts WHEN I was 16, my parents split up, and in the fallout I ended up living in a condo alone. I did my own shopping, cooking, cleaning and laundry; made my own doctor’s appointments; and wrote notes to excuse my own absences from school. It was rough, but by the time I was 17 I knew I was 100% accountable for my own work and wellness – an awareness I came to years ahead of most of my peers. My early exposure to independence stuck with me, and over the next two decades, as I made my way through college and up the corporate ladder,

Flash forward to 2016, and in my work as a franchise consultant, author and speaker, not a day goes by that I don’t meet someone who is stifling an inner entrepreneur, too bogged down by fear, anxiety, obligations, or a perceived lack of resources to pursue professional independence. Some of them are painfully aware of the conflict that’s holding them back. Others shy away from acknowledging this feeling-that-must-not-benamed, tamping it down and hanging on to the perceived security of corporate service. Not sure if you’re the stifled entrepreneur

“Entrepreneurship became my recurring, persisting dream. It was the professional happily ever after in every story I spun about my life” it continued to do a slow burn in my psyche. I was a solid (dare I say sometimes even stellar?) employee. But no matter how high I climbed or what company printed my W-2, I always craved greater self-determination. Entrepreneurship became my recurring, persisting dream. It was the professional happily ever after in every story I spun about my life. It took me years to make the leap, but once I was out on my own, the forces within that had taken issue with nearly every professional decision I’d made since I was that sink-or-swim 16-year-old kid realigned. For the first time I was not conflicted and was totally focused. I’d set my inner entrepreneur free, and that single change put my life into balance in a way I hadn’t even known was possible.

I’m talking about? In my experience, there’s a quick way to self-assess. There are four telltale traits almost every aspiring entrepreneur I meet shares. Any of these sound familiar to you? Longing: Like most business administration grads of my generation, I took a job with a big corporation right out of school. A great job, where I was treated fairly and paid well and recognised for my hard work. And that made it all the more unfortunate that I was constantly aware of some missing piece, something that wasn’t right about my employment, day after day and year after year. At times I found it almost painful to put my full effort on the

line and know this was another day that I was not building something worthwhile and meaningful of my own. You’d be amazed how many people I talk to – many of whom have found great success in the corporate world – who harbour that feeling of longing but feel powerless to do anything about it. Drive: Most of the frustrated, stifled entrepreneurs I meet in the corporate world share a work ethic that goes beyond diligence and into deeper territory: They care the most – in their offices, on their teams, about their clients. They share a passion and drive that can’t be trained into an employee; a person either has it or does not. These are men and women who put in 12-hour days, eat lunch at their desks, and wake up in the night with solutions to problems that plague them at work. They are uber-competitive and committed, and that trait isn’t something they can turn on or off. It’s part of who they are – and it’s an essential ingredient in being a great entrepreneur. Vision: In my years in the corporate world, I earned a reputation for rejecting the “this is the way we’ve always done it” mentality for more efficient or effective systems. The ability to make impactful changes was one of the most rewarding aspects of my work. The inner entrepreneur rarely accepts a cumbersome organisation or inefficient protocol just because it exists. He or she has a knack for keeping the end goals of every process in mind. Whether we’re taking an aerial view of the way a system works or the long view to where it ends, the entrepreneurial mind strives to find solutions, even if no one else is looking at the problem yet. Seeing the big picture and wanting to improve on it is in our nature, and it seeps out no matter how we make our living. Inspiration: I have a favourite quote from SUCCESS publisher and entrepreneurial guru Darren Hardy: “The size of your life is determined by the size of the problems you solve”. Almost every aspiring entrepreneur I meet shares a deep-seated desire not just to become professionally independent but to use that independence to make a positive mark on the world. Whether they’re impacting their families, their customers, their employees, their communities, or an even larger circle of influence, they share a desire to make a difference. If you see yourself in these traits, or if you know for a fact that you’re stifling your inner entrepreneur, you owe it to yourself to explore all options. If you give that slow-burning desire for independence a little oxygen, it just might bring new focus and light to your life.

BEST PRACTICE HOW SOCIAL MEDIA CAN MAKE OR BREAK YOUR BRAND PR expert Marsha Friedman on how social media opens new avenues of engagement OFTEN – MUCH too often in my view – I talk to CEOs who are still resistant to getting involved with social media. It’s as if they view sites such as Facebook and Twitter as little more than pesky annoyances that are irrelevant to what they do. They fail to recognise just how powerful social media can be as a tool that allows them to promote their brands, communicate with customers and handle damage control when complaints come tumbling in. What they don’t realise is that abstaining from social media really isn’t an option any longer. Social media carries on with or without you, and if you own or manage a business there’s a chance you are already a part of it – through people’s reviews and comments – whether you like it or not. Recently, I was thinking about the changing ways in which businesses and customers interact, and I asked Jay York and Brittany Vaill, two social media strategists at my company, for their insight on the role social media sites play in that interaction. “One good example is how Facebook is being used as a customer-service platform,” Jay says. “Customers can go to a company’s Facebook page and send the company a message, instead of making a phone call or sending an email. People want to talk to you on social media and they expect you to talk back.” If you don’t have anyone managing your social media accounts, though, those consumer questions and complaints are met with silence – and that’s not good. Jay encountered such a situation not long ago when he began handling social media for a client. Previously, no one had monitored the company’s

“You have to be there,” Jay says. “If the only way to contact you is through email or by phone, then that takes away a quick means of communication that many people want and expect.” Brittany reminded me that many daily newspapers traditionally have had restaurant critics, movie critics or theatre critics whose opinions could sway an audience. “But today everybody can be a critic,” Brittany says. “That means you need to step it up and be on your game because you never know when a disgruntled customer is going to show up on Twitter with an angry tweet.” Brittany and Jay say there are at least four ways social media is transforming the interaction between businesses and consumers: • Quality of communication. The rise of social media and various social media tools, such as Facebook Messenger, has made communication much quicker and much better. Anyone now can dash off a quick comment or question at nearly any time. The same speed of communication goes for you as a company whenever you have an important or timely message to share. • Variety of audiences. Social media isn’t something that only young people use. Every generation is represented. Name a demographic and you can target them and reach them through social media. • Responsiveness. You can respond quickly to customers’ questions, concerns and needs. That helps you build one-on-one relationships with customers who become loyal and spread the good word about your company on their social media sites. • Transparency. The whole world can check on how you handle those consumer questions and complaints. “If you go on a site and see that a company is responding quickly to its customers, then you are more likely to want to do business with them,” Brittany says. Of course, the opposite is also true. Never before have companies had to compete in quite this way. Years ago, consumers had no quick and easy way to gauge the reputation of a business, unless perhaps a neighbour or cousin happened to have done business with you. Now they can see what the world thinks about

“Now [consumers] can see what the world thinks about you. And you certainly want them to think only the best” accounts. Ill will had been building among customers who had issues with the company’s product but were getting no response to their complaints. One of Jay’s first tasks was to begin responding to those unanswered social media posts. He was able to start building goodwill as a result.

you. And you certainly want them to think only the best. That’s why social media is not just a pesky annoyance any more. It’s an important piece of your marketing that should command your attention in as professional a way as every other piece of your business.

MARKET WRAP MARKET TALK

THE FIGHT OVER CGT Proposals to change the capital gains tax have ignited passionate debate CHANGES TO how capital gains tax (CGT) is applied to the sale of the family home in Australia would have a detrimental effect on average families and the nation’s property market, according to one property lobby group. The Australia Institute recently released a report that called for family homes worth more than $2m to be no longer exempt from CGT, and for a rethink of the current 50% CGT discount on the sale of homes held for longer than 12 months. The Australia Institute claimed the changes would leave the federal budget up to $12bn better off over four years, and would also help improve housing affordability, but the Property Council of Australia (PCA) claimed they would have negative consequences. “Existing homeowners would be penalised for moving under this proposal, which would force them to stay in their homes. This unnecessarily impacts older Australians who are looking at downsizing,” said Nick Proud, PCA executive director residential. “Owner-occupier homes make up two thirds of the nine million homes in Australia today, and the family home is generally the savings base for retirement. This proposal would unfairly impact on people’s futures,” Proud said. By making family homes sold for over $2m subject to CGT, Proud said the nation’s renovation industry would suffer.

“Removing CGT exemptions on the principal place of residence would penalise average families, who will receive a significant CGT bill for any improvement in home values if they were to sell,” he said. “Renovations that improve the capital value on the family home, which are vital for the modernisation and more sustainable effective use of housing, would be less likely under this proposal.” Housing supply and affordability would also be impacted, as people would be more likely to invest in assets that have a more favourable tax profile. “Removing the CGT exemption on the family home would also see capital transfer into other tax favourable investments, such as shares, reducing housing availability, supply and affordability,” Proud said. “The record pipeline of new homes for homebuyers is finally translating to pockets of greater affordability; however, removing CGT would impede new home delivery and turnover, having unintended consequences if introduced.” The proposal has drawn a mixed response from the Labor party, with a spokesman for Shadow Treasurer Chris Bowen saying the party would not apply CGT to the sale of family homes but the Opposition is considering changes to the 50% discount, according to a report in Fairfax media outlets.

POSITIVE NEWS IN ABS FIGURES The latest home loan data from the ABS has revealed that the demand for mortgages increased in November but remained below the peak seen in August last year. According to the ABS figures, just over $33.3bn worth of home loans were written in November 2015, representing a 1.8% increase on October figures. Increased activity by owner-occupiers was the driving force behind this growth in demand, with lending commitments to those buying their own homes increasing by 2.4% over the month. Owner-occupier mortgage commitments rose to $21.753bn, while an increase of 0.7% saw the total value of investment loans hit $11.5bn. While the figures show the level of investor lending in November sat 7.7% lower than the same time in 2014, Mortgage Choice CEO John Flavell said the November monthly increase was a positive sign for the real estate market in Australia. “Last month, we saw a significant drop in the total value of investment loans written – a drop we attributed to the recent investment lending changes,” Flavell said. “This month, we have seen investment lending increase slightly, which is very pleasing as it suggests the housing market remains robust,” he said.

BY THE NUMBERS

$28.4bn The sale of office, industrial and retail property valued at over $5m totalled $28.4bn for the 2015 calendar year Source: CBRE

GOVERNMENT TOUTS FORCED SALES The Federal Government’s crackdown on the illegal ownership of Australian real estate has continued, with the announcement of the forced sale of eight residential properties. According to Treasurer Scott Morrison, the eight properties, valued at between $200,000 and $5m, bring to 27 the total number of forced sales by the Coalition Government. The eight properties in question were owned by investors from five different countries. “The individuals involved come from a range of countries – Canada, China, India, Malaysia and the United States of America,” Morrison said. “The foreign investors either purchased established residential property without Foreign Investment Review Board approval, or had approval but

their circumstances changed, meaning they were breaking the rules.” Morrison said the discovery of the illegal ownership of the eight properties was thanks to new powers granted to the ATO. “The government’s transfer of responsibility to the ATO for compliance has enabled more active investigations and actions targeting illegitimate purchases,” he said. “Since this transfer in May, over 1,500 matters have been referred for investigation. Through information provided by the public, together with the ATO’s own enquiries, over 800 cases remain under active investigation.” The eight foreign investors in question have three months to sell the properties, but they won’t be referred for criminal prosecution.

MORE NEGATIVE GEARING SPECULATION

MARKET TALK

CAPITAL GROWTH TO SLOW TO SINGLE DIGITS A global ratings agency has predicted a further slowdown in capital growth 2016 WILL be a muted year for capital growth for Australian houses, according to global credit ratings agency Fitch Ratings, which is predicting single-digit price growth over the coming year. Fitch’s Global Housing and Mortgage Outlook 2016 report claims the next 12 months will see a softer real estate market, with house price growth predicted to pull back to around 2%, compared to the 7.8% seen during 2015. Despite the slowdown in price growth, Fitch predicts there will likely be less activity this year by both investors and owner-occupiers as decreased affordability and tighter rental yields take their toll. “We expect the impact of decreasing affordability for owner occupiers to become evident over coming months, while a further compression of rental yields for investors will likely soften demand in the housing market, particularly in Sydney where the median house price is significantly higher than other Australian cities,” the report said. “Fitch expects house price growth to moderate over the course of 2016 to around 2%, likely driven by growth moderating in Sydney and Melbourne.” With Fitch predicting a slowdown in capital growth, buyers who have purchased houses recently likely did so near the top of the current cycle and therefore may struggle to service their debt over the coming year. “Fitch’s expectation of only modest

house price growth may add further pressure on the ability of borrowers to service debt,” the report said. “This will be especially true for borrowers who have made recent purchases and those that have contributed minimum levels of equity; investment property borrowers may prove particularly sensitive to rising lending rates.” There may be some relief for borrowers, though, as Fitch predicts the RBA may lower the official cash rate some time during 2016. “Fitch does not anticipate an increase in the RBA policy rate in the near future, as the effect of increased capital charges on the overall funding costs for banks has already led to an increase in lending rates. “The RBA is reluctant to cut rates, due to the already heated housing market; however, if weak external demand persists, combined with soft inflation and weaker wage growth, it may bow to pressure for a rate reduction in 2016.” While affordability issues may pose some problems for the owner-occupier market, Fitch does predict a slight growth in lending to those looking to buy their own homes. “Fitch expects moderate growth in lending for owner-occupiers, which will likely be supported by a forecasted GDP growth of 2.7% and a stable outlook for unemployment which is expected to remain between 5.8–6.5% throughout 2016.”

The Federal Government has been warned that it could be the one to lose out if major changes are made to negative gearing. According to a recent report in The Australian, Treasurer Scott Morrison is considering whether to put a limit on the amount property investors can claim as a tax deduction through negative gearing each year. The Treasury Department is currently compiling a white paper on taxation reform. The Australian has claimed one option that may be put forward is a combination of income tax cuts, ending tax concessions that come with superannuation concessions, and limiting negative gearing. But Rich Harvey, managing director of buyer’s agency Property Buyer, said changes to negative gearing could have a huge impact on the property investment industry in Australia. “Negative gearing seems to be the hot potato that always gets kicked around when it comes to talk about taxation changes. It seems to be an easy target for people to criticise or use, so it looks like they’re doing something,” Harvey said. “But people need to remember that negative gearing is one of the best ways to ensure the creation of affordable housing. Real estate in Australia is quite expensive, so there does need to be some sort of way to incentivise people to be involved and ensure there is a supply line of housing,” he said. Harvey said some “fiddling around the edges” of how depreciation can be claimed via negative gearing may not have too big an impact on investors, but he warned that drastic changes to the scheme could leave the government worse off than it is now. “Whenever I hear people talking about negative gearing and changing it, I think back to what happened when the Keating Government got rid of it. “The cost of public housing blew out and they ended up bringing it back pretty quick. Making changes to negative gearing often sounds good, but it’s something that’s fraught with danger.” Rather than tinker with negative gearing, which Harvey says benefits the housing market, he suggests policymakers should shift their attention to stamp duty. “Stamp duty is where changes should be made. It’s a regressive, inefficient tax. “It’s anti-environmental in that it discourages people from moving and living closer to work, and people suffer because of bracket creep. It’s the area where changes should be made, but the governments are making too much off it to change it anytime soon.”

DID YOU KNOW?

$500 In Sydney, the December quarter saw the first drop in weekly asking rents since June 2012, with the median rent dropping from $510 to $500 over the three-month period

Source: Domain Group

MARKET WRAP FINANCIAL SERVICES

CYBER SECURITY TO CAUSE ‘DRAMATIC DISRUPTION’ FOR BUSINESSES Ineffective security could see insurers refusing to pay claims for online breaches Cyber insurance could “dramatically disrupt” businesses over the next 12 months, according to one expert. Carl Leonard, principal security analyst at Raytheon|Websense Security Labs, a leading cyber security firm, said in the company’s 2016 Security Predictions that the cyber insurance market was in for a volatile 2016. “The cyber insurance market will dramatically disrupt businesses in the next 12 months,” Leonard said. “Insurance companies will refuse to pay out for the increasing breaches that are caused by ineffective security practices, while premiums and payouts will become more aligned with the actual cost of a breach. “The requirements for cyber insurance will become as significant as regulatory requirements, impacting on businesses’ existing security programs.” The report predicts that insurers will start understanding the scope of cyber risk. “We expect to see an increasing sophistication in the way the risks associated with a cyber breach are factored into policy cost, just as a driver’s safety record and driving habits are factored into the cost of an automotive policy.” “Insurance companies may even turn to intelligence and security companies to help provide actual data on attacks to develop more consistent, specific actuarial tables and different rating for

companies,” the report continues. After a rough 2015 for the cyber market in terms of data breaches, the report predicts a similar outlook for the coming year. “2015 was a tough year for breaches and the trend for 2016 looks to be no better,” the report states. “Against this backdrop is the gradual realisation within corporations that the value of their company’s data is a large part of corporate assets, and a huge potential cost during a cyber event. “Indeed, for some information-centric companies, a data breach can be the largest single risk for business continuity, especially when considering the potential of downstream liability from loss of personally identifiable information. “Such losses comprise not only that data related to customers, but also to employees.” The report issues advice to companies that brokers would be in a great position to pass on to clients with cyber issues, as better training could lead to a safer business. “Regularly training employees to be smart with email attachments and browsing behaviour will be increasingly tied to the bottom line as such programs will be reflected in lower insurance premiums due to reducing their risk of breach. “Ultimately, cyber insurance will drive better companies to adopt security postures to handle threats.”

FORMER ADVISER PLEADS GUILTY A former adviser has pleaded guilty to charges involving more than $1m of his clients’ assets. Former NSW financial adviser Darren Wise has pleaded guilty in the Maroochydore Magistrates Court to three charges of dishonestly gaining a benefit, making false documents, and using false documents. Wise admitted that between 1997 and 2006 he had created six applications for margin loans which falsely stated that clients had agreed to act as guarantors on the loans; submitted the applications with the intent of fraudulently inducing the lender to provide him with margin loans; and on 67 separate occasions dishonestly gained a benefit for himself by lodging securities owned by five clients as collateral for the margin loans without the clients’ authorisation. Wise obtained a total of $1,070,700 under the margin loans, which he used for his own purposes. He was granted bail and the matter has been committed to the Maroochydore District Court for sentencing on a date to be fixed.

ETPS ON THE UP

42% Investments in exchange-traded products (ETPs) in 2015 were up a record 42% to $21.34bn Source: Van Eck Australia

SHARE VOLATILITY PUTTING AUSSIES’ RETIREMENT AT RISK Finance sector experts at the University of Sydney Business School have said current volatility in the share market is presenting a high risk for Australians in or nearing retirement. “The current volatility is a reminder of how much risk ordinary people now face not just in saving for retirement but in more and more aspects of their daily lives,” Business School economist Mike Rafferty said. Rafferty said it raised the question whether “shifting life course risks

to ordinary people to manage is a very good idea”. Professor Susan Thorp said market volatility highlighted the need for retirement products that would help Australians safeguard their income from the “full force of financial downturns”. “The Murray Inquiry’s recommendation that the superannuation industry come up with products to help self-funded retirees manage longevity and investment risk is looking more urgent,” Thorp said.

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SPOTLIGHT wVIDEO SPOTLIGHT

ONE YEAR ON

2015’S CLAMPDOWN ON INVESTORS What a difference a year makes ... or not. Australian Broker reflects on the punditry, news and trends that made headlines 12 months ago

Tanya Sale

6 JANUARY 2015

Data from APRA shows that investor growth outpaced owner-occupiers in 2014

5 JUNE 2015

ABS figures show loans to investors surged 100% from 2011 to 2015, but RP Data’s Cameron Kusher says growth is set to slow

13 JANUARY 2016

AFG’s monthly data reveals loans to investors tumbled by 10% for the quarter ending in December

18 FEBRUARY 2015

The RBA says APRA will have to keep a close eye on prudential standards, particularly as they relate to lending to investors

11 SEPTEMBER 2015

APRA warns the banks of higher capital requirements for investor lending, leading to a raft of rate hikes on investor loans

TIME FOR MENTORING TO BE OVERHAULED? Mentoring is a vital part of the process of bringing new brokers into the industry. But for some it can prove to be costly. While many would argue that the costs reflect the true value of professional mentoring, Outsource Financial chief executive Tanya Sale recently told Australian Broker TV it was time to reassess the way brokers are brought into the industry. “What we have major concerns with is there just seem to be fee-for-service mentoring programs sprouting up all around Australia. What we’re getting feedback on is that they’re just not getting any outcome from it. The new entrants coming into this industry pay large slices of money and the outcome is just not satisfactory to the new entrant. They’re not learning anything,” she said. Sale said the structure and focus of mentoring programs also needed review. “We think you should start putting a really strong structure around the mentors. A lot of groups out there I’ve seen get a new entrant in and then put that entrant under one of their bigger groups. That’s when the mentoring, I think, slips. It’s not about the new entrant. It’s about the bigger group feeding off that entrant,” she said. In contrast, Sale said Outsource had taken a different approach to mentoring. “We don’t charge. In our eyes, if the new entrant makes money, so does Outsource. If they don’t make money, neither does Outsource.”

BEST COMMENT ONLINE

FORUM

NEW RESEARCH RAISES QUESTIONS The MFAA is set to release industry-first research, but some brokers are asking questions about the data

THE MFAA recently announced the release of new research it says will provide industry-first benchmarks for brokers. The Industry Intelligence Service report, to be released this month, is based on data obtained from more than 95% of the industry through the cooperation of 16 leading aggregators and broker businesses. MFAA CEO Siobhan Hayden said the new data followed on from the quarterly broker market share report and would be an industry first for broker benchmarking. Broker reaction on the research was mixed. One anonymous commenter took issue with the association’s plan to release the study’s results at a series of roadshows. “If they care about brokers just publish it online and add a link to the template so brokers can look further at their figures if they find the research as revolutionary as promised.” Mike agreed, adding that the association should stick to more pressing matters. “I totally agree. Sounds like a junket at the broker’s expense. Where is the MFAA update regarding discussions with ASIC and APRA? They should focus on more immediate concerns of our industry and not racking up frequent flyer points.” Curious wanted to know more about the methodology of the survey.

“Can someone tell me please who collated the Industry Intelligence Service Report and how they gained their data? Was this report commissioned by the MFAA or has it been written for other reasons? I do not want to have to go to a junket if the report was internally written and not truly independently written for the better of the industry. Before I believe in someone telling me the accuracy of something I would like to know that it was professionally investigated and that the facts and figures that they are reporting are true, correct and honest.” Warren also called the methodology into question. “Everyone seems to come out with these things, and the results are always exactly as they wanted them. I’ve never been surveyed, so how big was the sample size?” But Larz called other commenters out for their negativity, and said the research could be helpful to brokers in their businesses. “You guys are so negative. This is good news if the stats can be used to benchmark your business against other brokers. Of course MFAA will get some initial marketing benefits from the release, it would be stupid not to and I am surprised if anyone thought otherwise.”

THE COST OF MENTORING Tanya Sale, the CEO of Outsource Financial, has said the increasing trend of fee-for-service mentoring programs is wrong. But Karen Hambleton-O’Grady, the founder of MFAA- and FBAA-approved fee-for-service mentoring program Simply Mentoring, has hit back, saying free mentoring programs are not viable in the modern mortgage broking industry.

“When broking was in its infancy most brokers were coming from Banks and at least understood the terminology or process and could quickly adapt. Now new brokers are coming from all walks of life and will take some considerable time to gain knowledge and experience and having a ‘good’ mentor is crucial. The big problem is (and will always be) how good is the mentor. There are some people who are naturally good at it – patient, knowledgeable and most importantly, want to do it. Some may possess the technical ability to be a mentor but don’t have the patience or desire to do it. There is almost no doubt that having a mentor is the best way to learn the trade. Courses can provide the background but actually getting in front of clients with a good mentor guiding the way is where the good skills develop. I can hear the old timers saying now ‘no one showed me how to do it, I learned by trial and error’. The big problem is the trials and errors were on real people and they deserve better. To have someone making sure there are no errors is much better than picking up the pieces later. I trust there are people in the future who have the expertise and most importantly want to mentor to guide the new entrants to the industry in the right direction.” Peter Heinrich 20/01/2016 at 3:34PM COULD NEGATIVE GEARING BE CAPPED? Proposals to change negative gearing have sparked off debate in the industry

“Negative gearing is an easy target because it is ridiculous. The argument of ‘negative gearing is one of the best ways to ensure the creation of affordable housing’ counters itself. You can only have negative gearing if you own property. We need to help those that are trying to get into property for the first time when affordability is at all-time lows. This is someone in the industry trying to protect their income stream above any kind of logic.” Anonymous on 20/01/2016 at 8:51AM

COALFACE

MINING TO MORTGAGES: WORLDS APART New-to-industry broker Warwick Thomson says a great mentor and social media savviness can jump-start the transition to broking A FINANCE broker with Home Loan Connexion, Warwick Thomson has been in the mortgage broking game for just six months. He previously did a two-year stint as a property specialist, but before that clocked up 22 years in the mining industry, working his way up from apprentice diesel mechanic to maintenance

was 17 and then purchasing the house next door the following day. Alongside his mining career, Thomson delved into small business ownership and kept his passion for property and finance as he bought, sold and renovated properties. He says it felt like a natural progression to move into mortgage

“Find the mentor that you want to be. Find that person, that broker who has what you want” superintendent. So, why the change to broking? It was clear from a young age that Thomson had a head for property, buying his first investment property in his hometown when he

broking. Giving up the fly-in fly-out lifestyle of the mining industry for the flexibility broking offered was a welcome change. During his property career he became familiar

with banks’ requirements as he dealt with lenders and educated himself further while learning about the profession from speaking to brokers. “I thought if I can learn and assist others and educate them on what’s actually needed, then it’s got to be a good transition – it’s got to be a good job,” says Thomson. “It’s the same cycle in the mining industry – there are ups and downs the same as in the property market. So you need to be smart with your money when you’re making it, but also smarter when the quiet times are in.” Although being new to industry brings its challenges, he says there is a plus in that he is starting from where the industry is now and can’t compare it to the ‘old days’ as clients sometimes do. “Those who have been clients for 15–20 years come in and say, ‘Hold on, I was able to get finance five years ago just by giving that, or I was able to do this’, so it’s re-educating them on what’s required in this current climate,” says Thomson. “In the mining industry, especially with your OH&S and safety regulations, everything has to be very structured, and you have to be inside certain guidelines – in this new climate for the finance industry that’s what the banks are requiring. “Every situation is different and they all have their own challenges and complexities in it, so you’re forever thinking and you’re forever active and keeping up with the changes that are going on.” Getting a head start by finding a good mentor is important. Thomson stresses the value of mentoring and listening and learning from everyone around you. “Find the mentor that you want to be. Find that person, that broker who has what you want.” His mentor is Home Loan Connexion director Tracy Kearey, who has been a broker for nearly 18 years, and Thomson says she and her team have worked with him since day one to help him build his new career and rapidly progress. “It’s a very hard slog at the start. Don’t give up – just listen. At the end of the day that’s what it’s all about – listening to what your client wants; listening to what your mentor’s telling you; listening to what the bank requirements are. The more you take in and the more you understand, I think the simpler it gets.” When it comes to social media, Thomson doesn’t think of it as an advertising tool but more of an opportunity for clients to see what he is about, through regular posts ranging from news articles on property, updates from Home Loan Connexion, or weekend activities around Woolloongabba in Brisbane. “It’s more of a reference point for clients, especially the younger ones like millennials – they’ll check and see if you actually have a Facebook page.” Just six months in the industry and Thomson says he is enjoying everything broking brings, but nothing beats the day when a deal settles. “You’ve spent that time helping the client out, and when it settles, the look on their face and their gratitude – that’s the highlight,” he says. “Especially coming from an industry where you never used to get thanks – it’s quite good.”

PEOPLE CAUGHT ON CAMERA Late last year, Homeloans flew a number of brokers and lending partners to Hollywood for a sales retreat. This provided an opportunity for brokers to network with peers and key industry personnel, enabling them to learn about the Homeloans business, as well as Homeloans to learn about brokersâ&#x20AC;&#x2122; businesses in order to develop better working relationships and collaborations.

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PEOPLE HOT SEAT

GIULIO AVIAN The AMA winner of the Broker of the Year Non-conforming award, Giulio Avian, on helping clients outside the mainstream banks’ guidelines, and the best way to earn $30m What is your most memorable client experience? There are many memorable client experiences; however, in 2015 A we were introduced to a family who were challenged with their overall financial commitment levels. They had been trying to obtain finance approximately eight months prior to engaging Fundsnational. Our challenge was to refinance three mortgage facilities totalling $580,000, plus a consolidation of nine credit card facilities totalling $201,000 of credit card debt. We engaged our strategic partner, Choice Debt Solutions, who were able to reduce the credit card debt to $102,900. The saving of $98,100 in credit card debt, without affecting their credit rating, allowed us to keep the LVR below the 80% threshold and ultimately provide a life-changing solution.

What do you think is the biggest misconception about mortgage brokers? From the client’s perspective, a big misconception is that A the broker has control over the approval process and outcome. While the broker role is to facilitate an application that presents all the relevant information accurately, they do not control the funder credit guidelines or approval policies. The broker’s expertise in pulling all the information together and presenting it to a lender gives the client the best opportunity to gain an approval.

If you were named prime minister of Australia, what would be your first priority? A system that allowed everyone the same A entitlement to access education regardless of financial status or social demographic.

Q A

If you could have one superpower, what would it be and why? Play football like Lionel Messi. I think it would be a fantastic way to earn $30m a year.

If you could live anywhere, other than Australia, where would you live and why? Seeing as I would have my one superpower, naturally I would play A for Barcelona, therefore I would live in the south of France (the Pyrenees), which is just north of Barcelona.

What do you see as the biggest opportunity for brokers in 2016? To help more clients who don’t meet the mainstream banks’ credit A guidelines. More than ever, clients are finding changing credit policies affect their opportunity to get a loan. With the right support network brokers should be able to maximise on every client opportunity.

What do you see as the biggest challenge for brokers in 2016? The biggest challenge in 2016 is to manage time effectively. It is a A balancing act of managing existing relationships, developing new relationships, managing staff, and keeping on top of administration, whilst always provide excellent client service.