Australia’s commercial real estate market has been judged the most transparent in the world, but there are many aspects of the residential market that could be conducted with more of an open book.
The Jones Lang LaSalle Global Transparency Index finds that Australia has the most transparent commercial property market in the world, beating out other perennially open markets, such as Canada and the United Kingdom.
But few buyers and sellers of residential property in Australia would say the residential market is completely open and transparent. So here are seven ideas for ways to make residential real estate in Australia more transparent.
Some will be controversial, and industry analysts might argue they’d even create as many problems as they solve, but if we’re to aim for a completely transparent market they’re at least worth debating.
1. Make it compulsory to list a price on real estate ads
In some parts of the country, it’s extremely common to put houses and units up for sale without giving any indication of a price – not even a price range or a figure like ‘$400,000 plus’, both of which have problems of their own (specifically issues with underquoting, a hot-button topic in Victoria for years now).
For buyers, this can make shopping for a property a little like hunting for a needle in a haystack, since they don’t know what properties they might be able to afford and which ones are out of their price range.
The result is buyers spend their weekdays phoning real estate agents asking for a price guide on properties, or else they attend countless open homes on a Saturday, only to find out after driving all over town that they can’t afford any of the properties they’re viewing.
If a property is going to auction, agents will often go a step further than simply not listing a price, telling interested parties that they’re still looking for feedback from the market about the selling price.
This despite the fact the very same agent is (in Queensland at least) required to have completed a ‘comparable sales report’ for the seller, not to mention the fact that most agents will market themselves to vendors as experts on their local property patch.
2. Publish reserve prices ahead of auctions
Agents and auctioneers might argue that publishing reserve prices would kill off auction sales, but there can be little doubt it would improve transparency.
John Keating, who was chairman of the Real Estate Institute of Victoria’s Ethics Committee (yes, a real estate ethics committee) from 2000 to 2008, argues that just such a reform would actually give auctions a huge boost.
“If we can make the auction process totally transparent, many more buyers will be encouraged to attend and buy at auctions, which can only be a positive outcome for vendors,” he says.
“For the right property, a properly organised, marketed and ethically conducted auction that has maximum transparency is undeniably the best, fairest and most efficient way for purchasers to buy, and vendors to sell real estate.”
3. Allow public oversight of bidders’ information
Australian states and territories have moved to outlaw dummy bidding during the auction process, whereby friends or relatives of the vendor or the real estate agent falsely bid up the selling price.
However, there remains a suspicion that at least some vendors (if not agents) might still bend the rules by having a friend bid surreptitiously. There’s little way for an agent to know that someone isn’t a genuine bidder in these circumstances, let alone for another bidder to spot the fake.
Perhaps the answer would be to make bidders’ names and addresses publicly accessible in some way. Obviously there are privacy laws to deal with, but perhaps there would be some public good in allowing this information to be accessed.
4. Banks to reveal valuations to property owners
Experienced property investors would be used to the idea that their bank or lending institution would require them to have an independent valuation of their current properties in order to get approval for a new loan.
In many cases, whether the loan is approved or rejected, the bank won’t reveal the valuation figure to the owner.
There’s certainly a lack of transparency involved in that process.
5. Comprehensive and current sales data – free
It might be difficult to achieve, but surely it wouldn’t be impossible to have a freely available database of recent property sales data that’s accurate and covers every sale that takes place.
We might be entering the realms of science fiction, but perhaps it could be updated live or at least weekly.
There are some great sources of property data available in Australia, and they’re constantly improving and innovating, but we’re not at the point of having comprehensive and current sales data readily and freely available.
6. Compulsory, detailed vendor disclosure
Australia’s states and territories have a wide range of vendor disclosure requirements when it comes to the sale of property.
In a fully transparent market, vendors (and agents) would be required to disclose a wide range of relevant details they know about the property, possibly including independent building and pest reports. This isn’t the case in all jurisdictions.
Although there’s debate about how effective disclosure statements might be in protecting consumers, there’s little doubt they add to transparency.
7. Licensing for property advisers
Anyone providing financial advice in Australia must be a trained and licensed financial adviser. This is not the case for those providing advice on property transactions.
A federal parliamentary committee examined the issues surrounding the regulation of property investment advice in 2004 and 2005.
The Australian Security and Investments Commission’s submission to the committee spelled out the problems in the current environment:
“… in the absence of a licensing regime of some kind, it is very difficult to stop dishonest or incompetent operators from continuing to participate in the marketplace. Even where the general consumer protection powers can be used to stop or restrict particular activities, a rogue or marginal operator is not prevented from otherwise continuing with their business or ‘resurfacing’ under a different name or in another legal form. Dealing effectively with such operators arguably requires the structure of a licensing regime and the power to ban individuals from holding a license and undertaking regulated activities for an extended period of time.”
The Real Estate Institute of Australia’s (REIA) submission suggested that an effective solution would be to include real property within the current financial services regulations:
“The basic premise of the REIA is that all those providing investment advice should be regulated by financial services legislation, which may need to be better defined to address all asset classes, and not just financial products.”
The committee recommended a new regulatory regime be established so that any person giving property advice would be required to hold an Australian Financial Services licence (with a number of exemptions for accountants, lawyers, valuers and the like giving specific advice in their areas of expertise).
Despite this recommendation, no government action has been taken in that direction – and none looks imminent.
Regulation of property advice mightn’t seem like an issue of transparency, but in essence it is, because licensed advisers would be required to disclose any conflicts of interest involved in the advice they’re offering, whereas at present property spruikers can readily offer advice and sell property to a client simultaneously.
As noted above, some of these ideas might have wider ramifications on the marketplace. Some might be controversial. But surely they’d improve transparency.
Matthew Liddy is the Deputy Editor of Australian Property Investor magazine.