Ben Kingsley on the Return of Get Rich Quick Property Pitches

In this episode, we look at why parts of the property investment advice industry are drifting into dangerous territory and what it could mean for consumers and the market at large. A new wave of get rich quick messaging, unlicensed financial advice and short term speculation is creeping back into the market.

echoing patterns that regulators stamped out years ago. It's creating risks not only for naive investors, but also for credibility of legitimate professionals and the stability of the broader housing system.

To unpack these concerns, we're joined by Ben Kingsley, the founding managing director of Empower Wealth and chair of the Property Investors Council of Australia, that's PICA, and the author of a recent open letter sent to industry associations warning them of a rise in speculative, misleading and law-breaking behaviour.

Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about.

I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location, Location, Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

Our guest today is Ben Kingsley, founding managing director of Empower Wealth and chair of PICA, the Property Investors Council of Australia. Ben has long been an advocate for professional standards and consumer protection in property investment.

He's sounding the alarm on a resurgence of speculative, self-interested behavior that threatens to turn residential property into a traded commodity rather than a long-term investment class. Now, this conversation today

was prompted by an open letter from Picker to industry associations calling out a rise in speculative, misleading and law-breaking behaviour across parts of the property investment sector. Now, the letter warns that if these practices aren't addressed, they could damage consumer confidence and invite heavy-handed regulatory intervention.

So, Ben, thanks so much for joining us. This is definitely an elephant in the room topic.

It's great to be with you guys again.

Ben, when I did stumble on your letter, I did read it and I was thinking, yep, I've been seeing this too. We'll put a link in the show notes to the letter because I think we can't really read the whole letter out and take us too long.

But ultimately, what I've been seeing, which you've obviously highlighted in this letter, is this proliferation of property content through social platforms everywhere. And it's almost like everyone's feeling like, oh, you can say whatever you want because it's property and I don't need to be licensed.

And because so-and-so does it, I'm going to do it. And it's this sort of herd mentality. And the problem is that it's highly misleading. And so was that what made you sort of, I've got to do something here.

I can really see consumers are going to be in trouble if they start to follow this because the amount of views, particularly on the video type platforms is just astronomical what they get because they're so, yeah, shareable, I guess.

Yeah, you've nailed it, Chris. I mean, ultimately, our biggest fear is twofold. One is that there will be consumers that will ultimately get hurt. But the other part about that is the regulators could come in and make further changes to the way in which, let's call it private rental accommodation is managed.

invested in in this country. And that ultimately could then see unintended consequences associated with that. So yes, we're calling out the start so that the waterfall effect is exactly what you just said. This unbridled social media conversations and marketing.

A traditional financial planning business is banned from doing under the Corporations Act. So under sections of the Corporations Act, you can't actually do what they call sort of sugarcoating or isolating certain investment returns.

You need to be very measured in the way in which you deliver property or any type of financial advice. But because people think that residential property is unregulated, they think it's a free-for-all and we've got real concerns around that

viewed, especially if they start talking about leverage investments inside trusts or inside self-managed super funds. They are clearly investment products and that should require a financial license or to be an authorized rep under someone who's holding a company that's holding a financial license.

So that's the start. And they suck people in with the classic get rich quick Over the last six months, we've made 30% return in the markets that we're bought in. So you're missing out. This is a once in a generation.

So they create that scarcity and then that drives the audience and they get these engagements. In terms of the industries that we're sort of just alluding to here, we're talking about buyers, agents, mortgage brokers, accountants who are moonlighting as property investment advisors.

And as part of that, we're seeing this irrational animal spirits behavior that's going to potentially end badly.

Yeah, I mean, there's always been property spruiking, right? And people did it through off the plan sales or they did it through seminars and they did webinars and then they potentially did it through mass market media.

But I think that where I've seen it get really wild is just like you said, when you start getting into the self-funded super fund space and you start doing trusts, that often, you know, there was a few accountants that did that stuff.

You know, they've got a bit of trouble around recommending lots of trusts to property investors. But I've then seen a lot of brokers do this as well, like unlimited borrowing capacity through trusts. And it went through the whole broking world just a few months ago.

And so many super fund lending, which I thought was dead, has actually gone up a lot. And the banks have, non-banks have come in here as well. So is this where you thought, hang on a sec, this is getting out of control now. It's actually now really very clearly

getting into a really dangerous territory when you're asking people to set up tax structures and investing and punting their superannuation rather than, oh, look, over-promising returns. I mean, people have been doing that forever, basically, in the property market.

I think the consumer is a little more educated about the risks of buying off the plan and house and land packages. And they're a little bit more educated in terms of the underlying land value is what we'll appreciate over time. So what we're seeing now is the larger buyers agents or

cohorts of buyers agents that are looking for existing freestanding brick and tile homes in the entry-level markets where the yield is high enough to get the trust to service it. And they're just going in guns blazing and they're buying basically any property that they can get their hands on.

And in some cases, sight unseen, like where the buyer's agent hasn't even gone out and inspected the property.

Some cases or many cases. I speak to a lot of these regional agents, sales agents who are selling this sort of stuff. I'll say, how many buyers agents are you dealing with? Oh, heaps. And how many of them inspect the property? I've never heard any of them say to me two. It's one.

And they might have 19, 20 making offers. So it's actually horrific. I think it's a big issue.

And so you're saying that they're basically bundling this idea of get rich quick and to facilitate you getting into this market, we can help you set up a trust so that you can borrow more money or access or good little eyes have seen how much money you got in your super fund.

You can do it that way. So it's really about creating that scarcity and that sort of sense of FOMO. So just say, but don't worry, you're not locked out just because you don't earn enough. We can work it out for you. It's like, oh, I've got the solution.

It reminds me of mining town boom about 15 years ago.

Well, this is the next phase of that. I mean, and ultimately, what do we know about mining towns? Their boom and busts are led by investors, not owner-occupiers. And so with the data that we're studying, we're seeing that the number of investors who are buying compared to owner-occupiers is completely in reverse.

So it's 70% investor- 30% owner-occupier. So what's the foundation in which that value will hold its ground? One, the economy in that local town is sketchy at best, right? So it's just, this is going to end badly for those investors who get in on the last part of the cycle.

So it's all well and good that if you're getting in at the start and then this is that pump and dump sort of creating this sort of Ponzi scheme-like arrangements.

But if we think about it more logically, what political party is going to be satisfied that investors are driving up property prices, taking away the Great Australian Dream? So this is where I get concerned.

There will be carnage to start with, but then they'll have some, this will be the 13th or 14th inquiry where the conclusion will be

that we need to implement property investment advice to be regulated, because that's what I'm aware of up to 11 in my time on the PIPA board, where that was a recommendation at the state level or at the federal level, but they haven't done anything about it.

And so we're back to where we are. And in terms of some lending policies at the moment, I know of a big six bank, let's just call them big six, where you don't even now need the accountant's letter. So we're back to no-doc

lending, no-doc lending, where it's self-declaration that your trust is going to be able to wash its own face. I don't know what APRA and the regulators are thinking. That's a good thing for the market. I mean, what's a good thing for the market is a sustainable property market.

not where I'm getting coached by a mortgage broker or a buyer's agent about buying five properties quickly around the country. And in two or three years, we're going to sell those properties. And then that's going to give you a million dollar deposit to buy your dream home in a capital city.

Oh, is that the pitch?

That's part of the pitch, Veronica. Yes. So we're hearing like it's almost like a reinvesting pitch that we're saying, okay, so we're going to buy quickly any of these sort of cheap locations around the country and we're going to pump and dump. And so we're turning property into a tradable commodity.

That's not what property's function is. And as an investor in property, we're actually running a private rental accommodation business. And it should be a long-term because at the end of the day, most investors are looking for two things. They're looking for the income, the passive income there to get from the property.

And then the capital growth that they also enjoy over the decades, not something that I come in and trade for three or four years and then take the cash and run. That's unsustainable when it's also an essential need in terms of shelter. So it's going to end badly.

Yeah, and I think that's where the buyer's agents thing industry is in a bit of trouble here, I feel, because there always were these volume-based buyer's agents who went the regional. You know, there's some big names that have got 100 properties.

And then I think what's happened in the last few years, just because of the compressed budgets,

higher interest rates people don't want to spend as much and then there's this proliferation of noise is that it's pushed all the investors and then this short-term FOMO that's created because they're missing out and then they've got short-term basically off bank valuations that are desktops anyway right they're not actual sale data and then they're basically they've changed the view of what a buyer's agent done it's basically buying on momentum and you're basically speculating on the next hot spot and then you're trying to get out but I don't think they're really educating on when they have to get out they're just saying they're great long-term investors

And then what they're doing is they're saying, oh, don't buy three now, buy one because it's easy and it's an easy decision to spend 400. And then they get another valon and it's a 480 because there's an uplift in the market. And then they're re-borrowing at 80% on 480.

So basically this property is 100% geared. And so it's not just the end ones that are going to get caught out. It's all the ones that leverage up on the fake equity. And then when there is a bit of a correction, there's no equity there.

And then they're all going to have to rush to sell. And then, like you say, you're displacing the rental market. Well, you're actually going to create a lot more rental options for them. Well, so what's your thoughts on that? Displacing the owner-occupiers, that's what you're doing. Yeah.

And particularly because they're all going to the next hotspot. So Darwin, for example, is the one right now. And it's just like this train of altogetherness that's happening.

Yeah, I'm on record as saying in the early 2010s that there's no way known that buyer's agents can move markets, right? We've got 15,000 property markets around the country, and it's just unlikely that you would see that type of activity.

Now, I was saying that when there might have been across the country maybe 200 buyer's agents, right?

Now we know of thousands of buyer's agents and we know that with social media and also hotspotting and all these other things, you only need, say, three or four larger buyer's agency groups who might be buying 40 to 50 properties a month. going into a market.

So two or three of them going into market. And let's say there's only two to 300 properties in stock in that market. If they're going to buy a hundred of those properties very quickly, it's only inevitable that those markets are going to pop.

With the investor, let's say you've got a Sydney or a Melbourne investor and they're saying, how much are we paying for this? Oh, look, they want 460 or, and they say, well, just offer them 480 and let's just get it done.

What's 20 grand to someone who's got a couple of million in terms of their owner occupancy? home. So, there's several problems here, Chris, that I want to address from a broker in Bournemouth.

The first one is APRA did a pretty good job of trying to take the animal spirits out of the Sydney market when we had the big run in 14, 15, 16. Yeah, because we were seeing, you know, 45% to 50% of all lending in Sydney was investor-led.

So they put the throttles on, right? So they basically put throttles on in terms of you couldn't do more than a certain number of percentage of growth on your investor book. You saw interest-only lending throttled. You saw all of these throttles. Now, we know APRA will come out with something soon.

We're obviously recording a little bit. And by the time this goes to air, they may have already jumped on this. Yeah, it's in the AFR today as well. Yep.

They're going to have to throttle the animal spirits on the investor side because what we are seeing, and we've heard directly through our buyers agency network as well, that the valuers are now asking the vendor how many of these were offers by buyers agents versus how many were offers by owner occupiers.

And to your point, Veronica, how many of them actually inspected the property? So we're starting to see valuers clue in on this idea. So we would expect that some of these properties won't value up. at the current price point because the value will see artificial inflation.

But I think it's coming off the back of this wave of trust and self-managed super fund lending because the other thing that APRA did was throttle borrowing power, right? So through their 3% buffer rates,

If you get one or two properties really quickly, and if you're even on a good household income of a couple hundred, that's going to tap you out in terms of your borrowing capacity. The sort of hidden secret, so to speak, is to go around through trusts or through self-managed super funds.

And what they're doing is you get the cash out of your principal place of residence, And that in itself is a loan, but what they do is they park that money into their bank account on their trust and they wire a hundred grand across into that trust.

And then the broker puts the application up showing that they've got a hundred thousand in cash in the trust account and they've got the rental appraisal and they're saying this thing will service its own needs.

The broker is basically breaking the law by saying that the money inside that trust account is cash savings. and not debt. That's debt. That is not the client's money. And so I'm worried about the disclosures. And of course, these people have all come through these sales tactics online.

So they're just nodding their head to cut the consumer on the other side. So that sounds great. I just want that return. So that's what we have to do.

At no point is the broker saying there, oh, look, we're committing fraud because when we're telling them that this money is actually not borrowed money, So I just see problems in terms of these businesses that aren't disclosing the source of that money, number one.

And then two, they're getting the customer to sign the declaration or the accountant who's also in on the game to sign an accountant's letter saying that this trust will take care of its own needs.

That's why I can watch videos online on YouTube where it says, I'm going to show you how you can buy 12 properties in 12 different trusts. Now, that in itself is just unsustainable, people. And it's all self-interest. Like at the end of the day, it's the mortgage broker who's getting the click.

It's the buyer's agent who's getting a lick. It's the accountant who's getting a lick. And we've been here before. If anyone's listening to this... Just Google Storm Financial, right? Now, Storm Financial did this with house and land packages and off the plane. And they had a huge financial planning business.

They had a huge mortgage program business. They were in bed with CBA in terms of getting all that lending. But because they did all the compliance paperwork, they actually didn't get prosecuted as severely as what they could have done. Now, the laws have definitely improved since that time.

And that's where in that open letter, I refer to regulatory guide 36 and regulatory guide 175, where it clearly says in those that soft advice or the facilitation of advice, which is, hey, I've got you in via my social media marketing. I'm your broker.

This is sort of how you do it, but I can't give you this advice. So I'm going to refer you to the financial planner who will sign off on this, and then the accountant who will sign off on this. And of course, they'll make their money. They'll charge you their fees.

But remember, don't lose sight of the $30,000 you're going to make in six months. So the whole idea of those regulatory guides is ASIC basically telling these businesses, you facilitated that. You gave soft advice at the front end, and then you facilitated that.

And the customer was just taken on this journey with you. Now, as you both know, when you said at the start, I run a fully integrated advisory business that has licensing across all of those areas. But at no point does our mortgage broker facilitate the dream of property investment.

We have qualified property investment advisors. So I start with the right conversation with the right people. And then that conversation blows down. But what's happening here is the buyer's agent's telling people that, great, they're acting as a sort of moonlighting as a property investment advisor.

The mortgage broker's moonlighting as a property investment advisor. So we're sort of saying, who gave you the idea? Well, the social media ad gave me the idea. Whereas if the customer

had done their own research and they walked in and they said, look, I've read up about self-managed super funds and I see some positives about being in control of my money. I see positives about this.

I understand what I'm, and I'd like to learn more about this through the financial planner, but no, it's actually being sort of sped up in different ways. And that's that sort of that influence piece that they're talking about, that they're acting in their own self-interest rather than the interest of the client.

And it can also get out of control very easily because property advice is not regulated and it's all the blurry lines on the edge of it. And so they don't realize that they're stepping outside their lane because they don't even know what their lane is.

And because we're not regulated in the property space, a lot of people in the property space don't have the sensitivity to the fact that other lanes are regulated. and what you can and can't say. So, you know, I was just looking at a video from a lawyer. I like his videos.

I think they're usually pretty good. You know, he's talking about how this, all this infrastructure and how this is all the developments and sort of encouraging people to think that's okay to buy off the plan and in this particular area.

And I'm like, whoa, mate, you've just ventured way out of your lane, you know, because you think everyone's got an opinion when it comes to property and you're a lawyer. Yeah. Isn't that good? How I came across this pick a letter was via the Property Couch episode.

You and Bryce were talking about this. I think Bryce was interviewing you, which was fun. And you mentioned something about Heron Todd White's month in review because Heron Todd White are valuers. And so they had referred to this activity, sort of out of line activity in a lot of regional areas.

And so I reached out to the, is it the publisher or the writer of their bricks and mortar media put out these reviews. And I reached out to Kieran, asked him if he could highlight the areas in which it's been featured in their reports. And so he gave me a summary.

I'll just quickly run through it. Mildura. So this was in July. So the out of town investors predominantly facilitated via buyers advocates drove up prices in the sub 650K market. So that's an overinflated segment of the market. And Gladstone.

As values climbed, it was noted that buyer's agents were previously very active below $6.50, seems to be the magic number, but had since retreated to new locations once prices rose.

So if you've got a situation where you've got a higher than normal proportion of investors buying into an area and then they all disappear at one time, then prices have only got one direction to go in. To Woomba. This is in the July report.

A valuer commented that buyers' agents have been active competing hard for stock and sometimes are paying above market. This obviously leads to that problem with valuations stacking up then as well. And so what if they don't and selling a bit close to the win?

Launceston, buyers' agents, advocates highlighted as being particularly active and willing to pay premiums over what locals would offer. That was in August. That's dangerous territory. And the last one, Northern Territory, that was in June. So really before this pandemic. Big influx.

We're seeing reports on the ground said buyers agents have shifted their attention from WA to Northern Territory, becoming very active, although it's more about intensity of activity directly saying distorting values at this point of time.

But at that point of time, I checked and I think Northern Territory had been in underneath their market peak for 14 years at that point of time. So that's a long time to be sitting with your back teeth underwater, right? This is really scary, isn't it?

When you can see across the country that it's been noted that the impact that buyers agents are having on prices in these, particularly in these regional areas.

Yeah, it is, Veronica. And I think that the important message here is we detected this 15 months ago because people were ringing us up and so forth.

And we thought, look, if it stays really niche, like in terms of really small activities and so forth, then it wouldn't be a danger to the mainstream market. But we're definitely seeing the momentum shift in a significant way.

And that's when I'm like, I was starting to get concerned around the winter period to what Chris was saying before. And I thought, okay, I I know where this is going to go. So it's not our first radio. You guys and I, we've been doing this for decades.

So I did then started forward thinking about, okay, what is going to happen? APRA is going to step in. Yep, that's true. And then ASIC is going to make some examples of a couple of them.

But then the regulators are going to want to step in because the politicians will step in because what will happen now is that the Greens parties and the fringe parties and the like, they will get onto these types of podcasts. where industry practitioners are telling us we've got a problem.

And you've heard Jeff Chalmers, our treasurer, basically talk about leveling the playing field and unfair advantages. So let's play this out. And I'm thinking that people might be sitting here listening to this game, well, I've still bought in trusts and that's going to be okay.

We know the Labor Party want to introduce a 25% capital gains exemption.

So we know that you're going to have to pay 50% more tax on exiting the market at some point in the future when they do get the political momentum and they get the Liberals and the Nationals over the line on this because it's hard for the Liberals and Nationals to argue against the great Australian dream.

Now, we do know that property investors have an advantage for borrowing power because they can add rent to their servicing calculator. So obviously, the 5% deposit now brings first-time buyers back into the game. But we know they're going to do that.

We know the Labor Party are talking to Treasury and running the ruler over, introducing a flat 30% tax rate. So what if that comes in? So all of a sudden, the tax benefits that people were talking about in terms of distributions and so forth.

So my message here is once these sort of different types of entities and structures become mainstream... and the government doesn't get the tax revenues that they want, they will change the rules.

And if they know also that the industry is also saying, hey, we're getting in front of our skis here, we need to do something about this, then they are going to come in.

And I would hope that they don't do regulation without consultation with the industry, because we know that they'll basically overcorrect and they'll potentially run the risk of crassing the rental market. And that's unintended consequences. That is no rentals, no accommodation for tenants. And so,

That's not going to be good because we've got to crank under supply of property here. So conditions are perfect for these enthusiastic amateurs. There's so many younger people entering this industry. Maybe they're not doing it for their own self-gain.

Maybe they actually think they're doing good for their customer because they just haven't been through two or three property cycles. They've never experienced property during a GFC or any of these types of things. And we know the origin story of the global financial crisis was easy credit.

And yet we're sitting here saying today that there are as a top six lender and a top four lender who's recently introduced this sort of trust lending because they're seeing one of the other top six lenders creaming it and they don't want to miss out.

So it's just us about what we need to understand is property investing should be a passive investment. It should be in concert with the idea that the great Australian dream is still going to be available. Because if we take that away, then they'll regulate us out in terms of that opportunity.

Guess who will end up carrying the can for building and giving rental properties? That'll be the big super, big end of town and the big companies, the big corporations.

And we know through all of the research we've done around development and that up to 90% of all development, all new stock that comes to market is being done by small developers and builders. 90%.

So the only 10% that comes to market through the Mirvax and the Australands and all that is only 10% of the supply. So we've got to be really careful in terms of what we wish for here.

So we need to make sure that there's reasonable regulation that stops the speculation, but also makes sure that it is a sustainable market. So we continue to get that rental supply, which encourages economic and human mobility, because that's the problem when you think, well, not everyone wants to rent.

But the reality is for investment to come into a regional town or into market, they need rental accommodation. And if they don't have it, then that town can potentially lose that opportunity of that factory or that business starting up in that town.

And so we've got to be careful about the broader economic impact of carting out property investors. But we've also got to say to ourselves, come on, guys, animal spirits. We're the only ones pumping up the prices here. It's not owner occupiers.

So when the tide goes out, who's going to be swimming naked is the message that we're trying to get through.

Yeah, I mean, we did a podcast with a certain chap highlighting this with the way they were going about it in the Perth market. And we had this whole conversation around this.

You know, it just, when you're pumping it up with all investors and buyers past the point that owner-occupiers can afford, when the investors lead, what are you leaving? You're leaving an overprice. And then owner-occupiers are like, well, I never thought my place would be worth this.

I'm going to take my money as well. And they start selling. And then you've got the investors selling it the same. And I think by then, though, they've moved on to their next client. And I think there's always been this element in the market of buyer's agents having different strategies.

Do you just think it's just the velocity of it? And what, I mean, for the broker industries, it's had so much success. It's gone from 35, 40% market share, close to 80% market share. At the same time, near net interest margins that the banks make have also collapsed.

So for the Australian consumer, our biggest expense has got more competitive and it's reliant on the broker market, which the banks hate. Do you see this as a real risk for the broking industry?

Because it's just one of those cases where the brokers get thrown under the bus because a few bad eggs have just basically got caught on to, if I don't write this business and they're partnering up with certain buyers agents and all of a sudden the broking industry is being taken

targeted because A, banks have relaxed lending and B, you've got these clients coming to them saying, hey, I want to do it in a trust. I want to do it in SMS. And do you see that's the issue here for Australian consumers on a mortgage side?

Yeah. I think some people who've been listening to me rant on for years might think I'm a bit of a hypocrite here because in a lot of cases, I say in some parts of the market, over-regulating is actually killing economic investment and activity.

So I think to that point, Chris, what I'm trying to articulate here and what you were just really well explaining is what happens when there is overreach is you do get regulation and it's usually the 5% or less of the marketplace that's acting badly and then it affects everyone else.

Like in terms of the current story inside financial planning at the moment, the two big ones, where the whole industry is getting tarnished. Well, even Dixon Advisory at the time, right? And they did that property stuff in America. And we're all paying for it.

Like the good operators now have to kick more money in for the concession of last resort or the compensation of last resort scheme. So that's why I wrote to the industry associations. And I had conversations with both of the major associations in the mortgage. Oh, did you? Okay. Yeah.

And they're really protective of their brokers as they should be. The vast majority of brokers in this country do the right thing.

So all I was just saying to them, I said, look, if we get in front of this and we can stop these enthusiastic amateurs or these self-interested operators, then we can nip this in the bud in a couple of weeks and maybe one or two bad press stories.

But if we let the regulators then do an inquiry, and an inquiry goes like the Banking Royal Commission, then you're going to have to mop up from a PR point of view for years in terms of the reputational damage. So I'm sort of saying, do you want to have an honest conversation?

So am I just barking at shadows or chasing shadows? And if I am... call me out on it. I've been around this industry long enough to know, and I'm here from people like Veronica and you.

I've got networks basically right across the industry that are ringing me up, telling me these horrendous stories about buyers, agents, and brokers, and did you know this one? And they're sending me the videos. And so I'm building a library of all of these social media videos and I'm sharing them with them.

And so, yeah, I'm talking down my own industry and an industry that I love. And I love the fact that through a couple of sensible property investments, people can change their financial journey over time and live financially free.

But I'm not one of these people that advocates for 20, 30, 50, 100 properties, right? That's what they sell on. That's what people are attracted to.

That's the age of what these people might call excessiveness, but it sells and it sells really well because they see them on their boats and on their exotic trips and selfies in first class and all that type of stuff. And unfortunately, the unsuspecting consumer can buy into that particular message.

Again, it's those most vulnerable, financially illiterate consumers that these people prey on. And again, which sort of rounds out my rant here, Chris, is money. That's the one or 2% who are behaving badly that ruin it for the rest of us who do the right thing.

And then we've got more regulation, more red tape, less things that we can talk about in terms of that. So I want to have dialogue with the regulators and let's see, because there's some simple things that we can do.

And PICA has some policy positions around trying to say, how do we turn this from being speculative and moving away from a commodity? Because property shouldn't be a commodity, not certainly residential. I don't care about... commercial and all of that, that's business.

Go for gold if you're going to buy commercial properties and trust or whatever. That's a different type of story here. We're talking about the fact that this impacts an essential need in society, which is shelter.

And if we're going to keep pumping that price up where it becomes too hard for everyday Australians to own a property in Australia, we haven't done the good that we set out to do. I'm on a personal mission to help more people make better property decisions.

You know, most people don't realise that they can cost themselves hundreds of thousands of dollars over the medium to long term when they make property decisions without all of the information that they need.

And what I do is help people with tricky real estate problems, which often masquerade as simple questions like, should I sell my investment property because the interest repayments are hurting? Or should I buy before I sell? Or the other way around.

You can connect with me and access all of the tools that I've created to help you make better property decisions at veronicamorgan.com.au. And there you will find resources for first home buyers, details about my buyer's agent mentoring program.

You can connect with my Sydney based property management and buyer's agency teams, Australia wide vendor advocacy, or ask me for introduction to the small group of buyer's agents that I would personally recommend across the country. That's veronicamorgan.com.au.

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It's interesting, though, that the sort of regulation you're talking about is potentially financial mechanisms, right, ASIC and APRA, because there is no national oversight of property advice. Well, there's no oversight of property advice, really.

I mean, yes, a buyer's agent needs to be licensed in the state of territory in which they buy in. A lot of them buy in states and territories that they're not licensing because they don't realize the difference. So there's a lot of ignorance.

shall we say, just in terms of how they're meant to qualify. But that's sort of be that as it, you know, you've got a big organisation. I mean, there's a handful that have been around for a long time and yours is one of them.

And I haven't sat down and counted how many, but without thinking too hard, I could think of three, four or five big organisations that have cropped up in recent years. And as you say, they haven't actually weathered a complete market cycle.

And they are buying in volume in certain areas and they do have this pitch. And to be quite frank, I was always more concerned about just the fact that they had the ability to move a market, that they are buying sight unseen, that they are transactional.

They are not worried about really the long-term good of their clients. They may be buying with all the good intentions, but actually lack the experience and the understanding to know the damage that they're doing, all of that stuff.

I hadn't actually realized that, you know, to facilitate the multiple purchases for a client that they were coming up with these schemes, right? I hadn't actually tweaked until I read your letter. So I think it is a rather interesting angle and certainly it's right for the picking.

I guess that's all been going on. But we do have an issue with national oversight in terms of buyer's agent activities. You talked about going to the mortgage companies. broking associations. The real estate associations, however, buyers agency is a very small subset of all the real estate agents in Australia.

So even in New South Wales, I think it's something like 70,000 real estate agents. We actually don't know how many buyers agents there are because there's not a separate box you tick. Best guesses are there's maybe 3,000 in the whole country. So how did the REAs respond when you approached them?

Because for them, did they recognize that this is a real major issue or given that they predominantly actually represent sales agents, they sort of think, oh, it's not a big problem?

Actually, no, that's not true. The Real Estate Association of the ACT, I got a lovely response from their CEO or president. I can't remember exactly which one. So that was good. So we were in dialogue for a little bit. As for the other peak associations, I've got REIQ.

in terms of their CEO up there, Antonia. We've had dialogues for a while. She's been a strong advocate for getting the balance right between landlords and tenants. And at the end of the day, real estate agents thrive on transactions, right? At the end of the day, that's how they make their money.

And so a healthy real estate agent market for them is one that's transacting. And the same with brokers. In this particular case for self-managed super funds and for trusts, accountants and financial planners potentially also like transactions and people setting up new self-managed super funds.

And everyone has the right to create a business and be successful in the business. I don't want to belittle that opportunity for anyone or discourage that. I believe in abundance. And yes, to your point, we run a very large buyer's agency business and mortgage-broking business in this country.

So I'm effectively talking down our own book in terms of putting pressure in terms of what's happening here. And so judge me as a hypocrite if you want to as well in some cases because it's like, oh, this is just all about your own business. protecting our own business.

But where I've taken issue in terms of the research that we're doing around where they're buying and the markets that they're artificially inflating, our data is really clear that if they're buying in these regional centers that aren't commutable to a major city location, that's

where the greater risk lies for when the tide goes out that they are going to be really struck down. So Gladstone, Townsville, those types of centers, whereas you'd be talking about, I don't know, Wollongong or the Hunter or Geelong or even Melton, Ballarat, Bendigo, we're still commutables into.

So the evidence suggests that a downside risk, there is still volatility in those markets. but it's not as susceptible as these remote markets and certainly the mining towns and so forth.

Because one of the things that we've tried to educate people on is that property prices move based in the short term, i.e. over a one to three year period based on demand and supply, right?

And you can put a group of variables together and you can score those variables and you can be pretty reliable in terms of predicting short-term capital growth.

Darwin, good example, basically 150 houses for sale, a stagnant market for a long period of time, very, very high yields, and it didn't take much to push that market onto its current trajectory. So that's true.

What people don't realize in terms of where price settles over the long term is based on economic activity and the generation of gross domestic products or what we call GRP, which is gross regional production. And so if you get a town...

that then has a slowdown in its economy, or its economy has been spiked by this mum and dad investment going in, and there's no other great fundamentals in terms of what's going to keep driving growth and jobs and investment, and then that's putting more pressure on the current supply, you get a correction in the value of property.

And I mean, it's sort of common sense. I mean, when you drive into some ghost towns, towns that were these small towns and they've got the one pub, they're almost non-existent now because guess what? The economic conditions died off in that town.

And so we see on a current affair a couple of times a year where they're saying, the mayor's offering free land to come and build out here and buy out here because- they're trying to get that economic drivers going.

And so we're just sort of saying, be careful where you are buying because where you now can afford these 450, 500,000, $600,000 properties, they are all these long distance regional towns. And so you've got to be really confident in the economic viability of that town. And you've got to be prepared to understand

that their ebbs and flows in that economic viability are going to be reliant on either mining or agriculture, which are the two biggest industries out in those areas. So if you have drought, if you have a mine shutdown, you get enormous corrections in property prices.

And if you're not paying attention, all of a sudden the paper profit that you were told about, then seven years later, you're actually in negative equity. So that's the message that I'm also trying to get out there in terms of

asset selection and location selection still is paramount when you're doing these types of investment decisions.

Yeah. And I think that markets can turn really fast, right? So, you know, what if you, for example, go from undersupplied to oversupplied really quickly and as a buyer, you're like, oh, I can't find anything. Oh, actually, I've got heaps of choice.

Actually, well, prices are falling and all of a sudden it starts to go down. Up the escalator and down the lift, I think the saying is, right? And so that's where I think you'll find because there's no investors there. The owner occupiers are like, well, I'm not going to buy in right now.

I could have bought that for 550 last year. Now it's 500. I'm just going to sit. And if you keep seeing these investors selling, I think that's the issue, right? And if you have gone and taken on this wave, you'd be wanting to jump off.

If you don't think this is a long-term hold and you can protect yourself from a downside, you'd want to be getting off earlier, not later. Because it's all about the greater fool theory. And unfortunately, you don't know you're the fool until it's too late.

And unfortunately, in these areas as well, a lot of owner-occupiers will be getting burnt as well because they will probably not understand the dynamics and they think it's sustainable. Their place was worth $400, now it's worth $600. And then they've got an upgraded and all of a sudden, everything's getting overpriced.

The general perception in Australia, if you look at the Melbourne and Westpac sentiment survey, it's at its highest level on record in terms of the expectation of property prices to go high across the country.

So, remember we talked, you know, the famous saying from Charlie Munger that the share markets have... Actually, it might have been Benjamin Graham. The share market is ultimately a weighing machine, but in the short term, it's a boating machine. So... Conditions are perfect for this type of animal spirits behavior.

It's then when we get on the other side of it or when the government pulls the rug out from under the lending side. Another good example is one in Townsville where when the nickel mine collapsed in 2016, unemployment went to 12.4% in Townsville.

And you can just see there's a lost decade in Townsville in terms of economic prosperity and growth. Because those mining jobs paid well in terms of that. And we obviously know the boom-bust stories that happen in our direct mining centers.

And to your point, Chris, you articulated it well in terms of the top and the bottom of the market. If anyone tells you that they can pick the top and the bottom of the market, run a mile. Nobody...

No expert, no forecaster will reliably pick the top and the bottom of the market consistently. So they either got lucky. And in most cases, we don't know it's the top because our data in property is so lagged. It's three months old by the time we actually get to see the full results.

And even then you need a pattern. So you've got to wait another three months before you've got enough of it before you go, yep, that was the bottom or the top. I've routinely done that, you know, seen it, felt it, but you can't be certain. You feel it on the ground.

You can't be certain. And also a lot of these people are buying in areas that they're not actually on the ground. So they don't feel anything. They're not actually experiencing what's happening.

Even in the big cities, I remember distinctively when interest rates started going up. Caulfield Cup Day in Melbourne in 2023, I think it was, it just completely stopped. There was good buying activity, auctions, we had the team out.

We always count the number of bidders and number of contracts going out and all that type of stuff. And we're just like, what just happened? It was almost like overnight, sentiment just changed. And you're not going to see that in the data for three months.

But we straight away went, all right, this is interesting. The worst still, if you're a borderless investor and you've got properties around the country, you're not going to know that for six months.

And by the time you know that, days on market, stock on market are starting to trend higher and you're too late and you've just given away your peak. Exactly.

You can't just call up your broker or go on to E-Trade and then just basically sell, sell, sell. Like you've got to get this place ready to sell. You've got to wait for your tender to move out. You've got to get losses. And so all of a sudden it's a race to sell.

I mean, in Northern Territory right now, I've just brought up courtalities monthly. It's 44% of lending is to investors when the average is probably low 20s. So double the amount. But that means 56% of the lending is still going to owner-occupiers who are basically getting swamped up in this.

In WA, it's still very similar. In all the states, it's well above averages.

My long-term trending on that, Chris, just so you know, I'm in the early 30s traditionally. So rather than the late 20s, I think there are two measurements there. One is volume of lending versus the actual value. Two tracks would trend.

And so to your point, it's the volume that's the critical one there as opposed to the value because loans are getting bigger because property prices are getting more expensive.

Yeah. I know I saw some, well, Cotality came out with Darwin, I think it was a couple of months ago, something like 48% of lending was for investors. And so that just says, oh no, oh no.

Yeah. That's a trading market. I mean, ultimately, at the start of the year in our predictions episode, I did say that. I said, look, Darwin will be the best market, but you want to be careful because it's not a market you would actually hold over the long term.

It's also a capital, but it's our 17th largest.

Yeah.

So there's a lot of regional towns that are bigger, yeah, by population, yeah. And, you know, you think, oh, okay, that sort of puts it into perspective just ever so slightly.

But also like the speculation there. I mean, so let's say they get 30 or 40 and you capture it. You get in early at the party.

You captured most of the upside, which is pretty hard because usually by the time you hear about it, you're like usually lost, you know, missed 10, 20% of it. You capture 30, let's say, after, you know, five to 10, let's say 10% of transaction costs.

By the time you added a few sunk costs of fixing this and fixing that, like you maybe walk away with 20, but then you pay capital gains tax, let's say 5% of that, 25% of the gain, you make 15%. Well, your 30 was actually only 15 and it's a low purchase price.

And like, you know, you- Higher risk, it's not worth it. Yeah. And what did you risk to make 15% over two, three years? Isn't that good of a return? Like really? And so I think that people don't really realize that as well.

The number you feel like, it feels like a lot of money, but a percentage when you take off all the costs, it's not that much unless you really are the one who play the market really well. And the risk is if you don't, right? You're getting too late and you leave too late.

Yeah. And that's always been the problem. Everyone says, can't you just show me the market where it's depressed, but it's about to take off? And unfortunately, the data can't do that, right?

So sometimes people get into markets in terms of, you know, they trade bottom of the cycle, but they could be sitting there for, like in the Perth case, you were sitting there for almost seven years, you know, before the market turned. And so-

I think from that point of view, the lessons that we always know in the short-term data is we want to be confident that the market has turned and the fundamentals feel right. But the first thing we always look at is what's the economic viability? What's the cycle of the economy?

Because I'm still quite bullish on Perth as an example, because their economic fundamentals are phenomenal compared to every other state in Australia. And their population growth the lifestyle. They've just got a lot of things in their favor.

They've got bugger all debt compared to the basket case that is Victoria. That's why I think theirs will be not so much because the perception is that it's a mining cycle.

And I'm like, I can see that in the past, but with the growth of population and the fact that they're diversifying their economy into so many other areas with that, because they've got an energy advantage, they get gas basically a third of the cost that we get it over in the East.

So all the investment that we're going into shipbuilding and all that other big heavy industry is all going west and it pays good money.

And I don't have to go to the mines to get the good money, but the FIFO will still be there, but it does bode well for lifestyle and those other things. And of course- Garden Island with all of the submarine package and Orcas, thank you.

So there's a lot of that sort of stuff that's going to be going on. I think the fundamentals for Western Australia look really solid. And if I'm looking at the traditional trends of the higher market moving, it's starting to also balance out as I would expect it to.

So I still see some positive upside in the next six months in Perth.

So have you got a property dumbo for us today, Ben?

Look, I think the dumbo is don't try and speculate on property. And that's sort of been the theme of what we've been talking about here today. The idea of get rich quick in property or building a portfolio fast. I've seen a lot of people attempt it.

And I've seen a lot of people get into debt that's unsustainable and they haven't factored that into their personal. When the GFC hit, there was people who were doing no docs and mo docs and they almost get wiped out or they do get wiped out.

So for mine, it's just don't speculate on property. Understand the fundamentals in the short-term supply demand and in the long-term in terms of economic activity, human interest and human behavior. If you can understand those things and you play the long game, property can be a wonderful financially transformative asset for you.

But yeah, don't get caught up in the get rich quick stuff.

So funny, Veronica asked me how's business going at the start prior to this, you know, hey, how are things going? And I was like, well, in the uprooted market where we specialize in a lot within Sydney, you know, they're really sitting on their hands, which makes sense, right?

The additional debt, higher interest rates, you know, I said it's a really tough first home buying market, you know, obviously with the 5% deposits and it's a really tough, you know, and it's just really hard to buy, right?

And then I said, well, the investor market, we just don't position our business at the the lower end investment properties, and we just don't do any marketing around investment specialists. And so we don't capture that. And that's one of the biggest drivers in the market right now of new lending is that investor.

And it's just because we don't agree with the philosophy. We don't partner with any of these buyers agents. We just don't have any exposure to it. And so I think that's an interesting one because I think it's just something we can see as an issue. We've seen it from the start.

I am concerned about the mortgage-broking industry, if I'm honest, through this, because I do think there's a ticking time bomb. The banks want to kill us, right? Let's be real because we're eating into their profit margins and we've had too much success.

And even ANZ came out this week and said, we don't need the brokers. We can do it all in house. Okay. Good luck with that. But that's where I think, you know, that just gives a little bit of an insight to ASIC to come down as blame brokers.

And the whole broking industry is now dealing with this fallout because a few bad eggs just got caught up in these buyers agent sort of spruiking schemes.

You're right, Chris. And I think when I look at your business and I see the quality and the professionalism, you will be around for a long time, right? Because your fundamentals are right. The advice that you're given is not speculative.

And so the same with Veronica's business and what you guys have been able to achieve in terms of the education and knowledge that you've been able to pass on to your community. This is the knowledge that is sustainable. It may be conservative.

We may not be caught up in the nice shiny thing that everyone's doing over there, but we want to run sustainable businesses that protect our clients' money. What's rule number one from Warren Buffett? Don't lose money. What's rule number two? Refer to rule number one.

Rule number one, yeah.

If it's your own money, then go for gold, right? But when you're dealing with other people's money and other people's life, you need to take that situation so seriously, so seriously that, yeah, because you could make or break their future.

And so if you don't handle that with humility and understand the gravity and the responsibility of what you're doing, And you just get caught up in the animal spirits and, you know, this sort of stuff that's going on in terms, this is how you make big money.

We've been here long enough to know that those Spruka businesses, they come and go. They're in different shapes and forms, but they're not sustainable. They haven't been a business that was established in 2007 or beyond in terms of that. And you guys are testaments of that as well.

Yeah. But sadly, what they do have is they leave a legacy.

And the people that follow their advice, many of whom are doing it in good faith, they think they're doing smart things for their family, but they are led astray and they are, you know, seduced by the quick returns and they feel like they see everybody else is getting on this bandwagon and they want to be part of it too.

And it's a terrible thing. So, yes, I'm a bit disappointed to hear that the REIs have been so unresponsive

Yes, quite. But I mean, look, that's the job of what you do, Veronica, also on the board of PIPA as well.

So we've just got to keep the dialogue open and our doors open for conversations with the associations and also with the regulators to say, we think there are a couple of simple things you can do that can take the animal spirits out without crushing the market. Let's have a chat.

Let's talk about what those things can be.

The final thing I'll just say, if you were a buyer's agent though, and you're listening to this and you are, you know, wrapped up in this, it's okay to put your white flag up and say, I surrender.

I don't know what I'm doing and I've made a mistake and I'm not going to do it. And I want to go and reach out to the buyer's agent industry who's got a bit more experience and you understand these risks now. That's okay. Like it's okay to,

sometimes change behavior and accept that you've made a mistake and then ask for help. And I find that sometimes people, they didn't know what they didn't know. And then they find out and they just keep going and just, you know, hoping it's all going to end.

Well, it's not, you're better off just putting your white flag up and saying, I need help and you'll come down with the herd. And so I think that's just a thing I want to call out.

I think, I feel like, you know, as buyers, they just, they get about two or three years in, they're like, oh, Maybe I won't be buying that type of property anymore.

It's a bit of an icky feeling when it starts to dawn on you. Oh, hang on a minute. This doesn't look so good.

Again, some full disclosures. I've said this public on our podcast many a time, but I'll say it here as well, because we are not perfect either. We bought quite a lot of apartments in small developments in Brisbane through 2015, 16, 17.

And those apartments did not yielded well, but they did not perform well for capital growth. They're doing quite well now. So we made mistakes

Even the people who spend an enormous amount of time, money, effort, and energy to try and get it right, we still make mistakes.

And so- It's a hard thing to get right. And that just shows it.

Yeah. And we don't have a perfect 100% record for every customer that we've helped. And it breaks your heart because you know that you can't buy every property for everyone. But I think it's just important for people to know that as long as we're trying to do our best

We're trying to get the right outcome, but we still make mistakes. And there are still risks in terms of what basically happens that are in our control that we've got to own. And they're also out of our control as well, then impact the market that we didn't see forthcoming.

And in the Brisbane case, when we went in there, supply was tight, but we didn't expect the government to just basically rubber stamp pretty much every proposal for five stories or higher partner blocks.

And so all of a sudden for the next 12 or 18 months, apartments were coming out of the ground everywhere and that plies the enemy of capital growth. So we got caught out and those clients didn't get the returns that some of our other clients do. And same sort of thing.

Some clients went into Perth with us, some clients went into Melbourne and they haven't had the same return over that short period of time. So we've got to own that and we've got to understand that we're still trying to do our best in terms of that.

But even with the best intentions and the humility, you can still make mistakes.

Well, Ben, thank you so much for coming along and chatting to us today. I think it's a very important message and it feels to me like there's growing awareness of the dangers out there from this sort of unfettered activity. And let's keep the pressure on.

Let's keep yelling out to anyone who's going to listen who might have some ability to impact or to bring some change to this. So thank you. Thanks for all the work you do.

Thanks Veronica and thanks for the support, Chris and Veronica. I love the fact that you can help me get the message out there.

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