Why ASIC Must Have A Role In Regulating the Housing Market

Posted on December 19, 2013 by | 5 Comments
Industry Training Consultants

Industry Training Consultants is a Department of Education and Training recognised Registered Training Organisation (RTO#90964) offering Nationally Accredited Training packages to various industry sectors across New South Wales.

Summary of points by Industry Training Consultants 17/12/2013

  • There is a real opportunity for both ASIC and the states to work together in drafting a bill for a Commonwealth Real Estate Advocates Act or Property Professions Act, that gives ASIC additional powers to prosecute in other areas such as a “Mortgage Broker” who performs buyer agent activities unlicensed.
  • The benefits of national licensing are not achievable until conduct harmonisation is addressed by a Commonwealth government agency who oversees market conduct and consumer protection issues. However, given ASIC’s track record on licensing activities, it would be easier to include additional provisions for licensing in the National Law.  This itself is an opportunity to tidy up some of the loose ends surrounding those professions, such as developers, investment advisors, conveyancers and valuers – who all play a role in property transactions. With that said mutual recognition would be the answer rather than creating a centralized bureaucracy through the National Occupational Licensing Authority (NOLA), and another layer of regulatory responsibility.
  • “Property Investment Advice” needs regulating (appropriate licence required).
  • Unlicensed real estate agents recommending investors use a self-managed superannuation fund (SMSF) to invest in property requires strict law enforcement and policing.
  • The state based agencies are not market regulators. Their role should be limited to overseeing just tenancy, strata and conveyancing laws. State base agencies like NSW Fair Trading administer over 50 pieces of legislation and yet 75% of the overall complaints that go to Fair Trading are property related. This requires effective delegation and reshuffling of responsibilities.
  • Speculative borrowing in residential real estate has been cited as a contributing factor to price bubbles in Australia’s housing economy.
  • Consumer lending makes up the bulk of Australian bank lending, and of this, residential mortgages make up by far the largest share.
  • ASIC plays a role in market supervision and competition, and corporate governance.
  • Housing market played a big role in most economies and was central to the global financial crisis, and appears too important to be regulated on its current typically severely fragmented basis.
  • ASIC is a Commonwealth government agency overseeing market conduct and consumer protection issues on credit which relate to residential property.
  • ASIC has a new market surveillance system in operation, known as MAI (Market Analysis Intelligence), the system enables ASIC to better detect, investigate and prosecute trading breaches. The new system enables ASIC to interrogate very large data sets and monitor market activity, consistent with the increased use of technology in day-to-day trading. This could extend further to house price information, reserves and land disclosure reporting.
  • The need for “hedging instruments” to minimise price distortion and bring corruption under control.

“State licensing and state base agent laws acts as a real impediment to labour mobility” It’s now time for a new Regulatory Regime”

5 Comments

  • aamir says:

    they should pass this bill as soon as possible, other wise we might see a home price bubble bust in Victoria , or worse a mortgage crisis, similar to the sub prime mortgage crisis that ignited the Global Financial Crisis.

  • Another reason why we must implement a new regulatory regime;

    Consumers and property agents should be aware that under the Australian Consumer Laws the definition of “consumer goods” means goods that are intended to be used, or are of a kind likely to be used, for personal, domestic or household use or consumption.

    However, the definition of “consumer goods” doesn’t extend any further to commercial real estate. For example, if you are buying commercial space from a real estate agent intended to be used for investment purposes, you are not considered a consumer and therefore not protected under the ACL.

    We presume the only level of protection for consumers throughout Australia for this type of transaction would be available under common law.

  • This Bill might benefit the licensed brokers and estate agents. This is to control greedy (and bogus) brokers who set higher pricing to secure bigger commissions. If ASIC will succeed in regulating the housing market, then every property mortgage would be fair. Also, given the fact that housing has played a big role in triggering the global financial crisis, regulation of the housing market is probably the next logical step to prevent another GFC.

  • Danny Beger says:

    Unfortunately housing bubbles like all other types of bubbles are the result of a number of factors coming together to make a “perfect storm”. Whilst I do not agree with all of the points raised by ITC, I do believe that the summary of points demonstrates the diverse range of factors that can contribute to a housing bubble.
    The activities of real estate sales agents clearly need to be regulated and no doubt such regulation would be better at a national level than on a State by State basis, each with different rules. In my opinion however such regulation will do nothing to prevent bubbles.
    Similarly the banking industry is already subject to significant regulation via the Uniform Consumer Credit Code and other legislation.
    In my opinion one area that should be subject to further uniform leglislation at a federal level is the licensing of property investment advisers. This is particularly so given that investment advice via the internet is not subject to territorial borders. It is also likely that property investment advice particularly when proffered by those that sell finance is likely to be biased and a contributing factor in “talking up the market”.

  • Hi Danny,

    I think you’ll find, that if ASIC and APRA had a role in regulating the housing market, finance regulation would be easier.

    The concerns of over price bubbles and excessive borrowing and speculation in some economies, is triggered by a flawed price model system that is based on emotion and affordability, and not by the properties true valuation price. By having this misinformation go unchecked, the sales data is absolutely useless and causes home buyers to make bad decisions.

    To make matters worse, there are concerns to do with the lack of accuracy surrounding “Online Automated Valuation Models” and the common errors found in value from these automatic reports. The other issue pertains to the accuracy and validity of the full bank valuation, which is nearly always less than the true market value. This is because they’re not the same thing as a pre-sale valuation. The bank valuation is used to work out how much the banks can lend responsibly to a borrower and to mitigate risk in the event a borrower defaults on the loan. On the other hand, a pre-sale valuation is more comprehensive and is the price one is expected to get, if they were to sell their property (supply and demand curve shifts are not accounted for – this is an external condition of the economy, that cannot be measured in advance). During this process, valuers analyse sales of both vacant land and improved properties, making adjustments for the added value of improvements to both the area and building. When there are unsuitable sales, a valuer will factor in other matters, such as most valuable use of the land, holding costs, taxation, constraints on use such as zoning and heritage restrictions, shape and land features such as slope and soil type.

    To eliminate this significant deficiency within the system, there really needs to be a pre-sale valuation report included with the contract for sale of land – whilst sales data needs to be available in real time to help reduce sharp distortion in house prices aswell. The housing market should operate on principles similar to those of the stock exchange, which would allow for the rise of products that allow investors to hedge house price risk, as they can in equities and currency markets.

    People need to also understand, there are too many variables involved for a house to be worth the price one is prepared to pay. Furthermore, the residential building and land valuation model is quite different to the economic model of supply and demand. It may take a bit to get our head around this, but once we do, price bubbles and excessive borrowing and speculation in our economy will be largely preventable. However, without proper corporate governance and having the right policies and procedures in place, rigidities in housing supply, tax and subsidies, as well as prudential pressures favouring borrowing for housing, will continue to distort the price of property.

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