Whatever their experience or qualifications, anyone can legally promote property as an investment option.
While the Property Investment Professionals of Australia (PIPA) have been lobbying for years to bring in legislation that will protect consumers, a recent survey by SMSF Advisor revealed there is limited industry support.
Of the 469 surveyed, more than a third said they believe no regulation is needed. Just 61.2 per cent of respondents said property investment advice should be regulated, while 38.8% said that regulation was completely unnecessary.
Damian Collins, managing director of Momentum Wealth in Perth and a director of PIPA, argues that increased transparency and disclosure of fees and kickbacks is very much required.
“There’s no doubt we need regulation,” he says. “At the moment anyone can get up there and spout what they like about investing in real estate â€“ regardless of whether the property is right for the client or whether it’s a good investment or not. Ultimately there’s no real accountability because it’s not currently a regulated area.”
“At the moment anyone can give property investment advice. There are no skills, no licence or educational requirements legally needed to do that.”
Unlike other investment vehicles, property is not considered a financial product therefore there is nothing stopping someone completely unqualified from calling themselves an expert and advising people to part with their hard-earned cash.
But Damian argues that property investors deserve the same level of protection as any other investor and should be able to make informed decisions about such high value transactions.
“In order to give insurance advice for a $100 insurance policy, you need to hold a licence. If you give someone advice about investing in managed funds or shares for a couple of thousand dollars, you need to hold a licence. You have to be licensed and go through necessary compliance for all other investment classes â€“ I don’t see why property investment should be exempt from that.
The main reason property investment has remained unregulated is because it’s been in the ‘too-hard’ basket, says Damian. “It’s not because it’s been specifically excluded â€“ it’s because the states regulate real estate whereas the Commonwealth regulates financial products. So that area has been easier to regulate because it’s only one layer of governance. But the simple thing would be to classify property as a financial product under the Corporation Act â€“ that way it would come under that realm of compliance.”
“Novice investors come into the market and if they don’t seek the right advice they might end up talking to someone who just wants to sell them a property and couldn’t care less what it will be worth in three or four years’ time or how it’s going to build their wealth.”
Damian suggests that industry reluctance to introduce regulatory measures simply comes down to avoiding extra paperwork and red tape.
“I don’t think people are saying no because they don’t believe regulation is a good idea, they’re saying no because they see it as an additional compliance burden,” he says. “Yes, regulation would inevitably mean more compliance but it should be no more than any good property investment advisor is currently doing, which is making sure any property they’re recommending is suitable for the client’s circumstances and fully disclosing their fees. These are all requirements of PIPA membership.”
PIPA hope to develop industry codes of conduct and work with government to introduce regulation that will protect property investors. They also hope these measures will boost the industry’s credibility by squeezing out those rogue operators who give the rest of the profession a bad name.
Says Damian, “At the moment there is no licence and anyone can give property investment advice. There are no skills, no licence or educational requirements legally needed to do that. The amount of money in investment real estate â€“ not even homes â€“ is equivalent to the size of the share market. There’s a lot of money and a lot of investment out there in this space and there’s no real environment for professional advice and for the people giving the advice to be educated and skilled in that area.
“In order to give insurance advice for a $100 insurance policy, you need to hold a licence. If you give someone advice about investing in managed funds or shares for a couple of thousand dollars, you need to hold a licence. I don’t see why property investment should be exempt from that.”
So what is it about the current market that has brought these unscrupulous types out of the woodwork once more?
“Sydney has had a good run the last 12 months and so have Melbourne and Perth â€“ so when things start to get better again and the market starts to improve, first-time investors come in who are a bit naÃ¯ve.
“We’ve seen it come and go in the cycle â€“ we had it in the early 2000s when we had a strong property market around Australia. I’ve known examples of people who’ve purchased property from these promoters for $400,000 and the property is now worth $230,000-$240,000 so there’s been some quite substantial hits.
“While some people have a memory of 10 years ago, a lot of people won’t. Novice investors come into the market and if they don’t seek the right advice they might end up talking to someone who just wants to sell them a property and couldn’t care less what it will be worth in three or four years’ time and doesn’t really care about how it’s going to build their wealth because their goal is to sell them a property.”
Until regulation is brought in, you can protect yourself by only dealing with advisers who hold a Qualified Property Investment Adviser (QPIA) certification and who are PIPA members. All PIPA members subscribe to a code of practice and fall under strict guidelines for best practice. For more information about PIPA and its members, click here.
7 February 2014