inquiry into property investment advisers and marketeers

190 Pages·2008·1.31 MB·English

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LAW REFORM COMMITTEE
PARLIAMENT HOUSE, SPRING STREET MELBOURNE VIC 3002 T 8682 2851 F 8682 2818 www.parliament.vic.gov.au/lawreform/
Inquiry into property investment
advisers and marketeers

Final report of the
Victorian Parliament
Law Reform Committee

April 2008

ORDERED TO BE PRINTED
by Authority
Victorian Government Printer

Parliamentary Paper
No. 89, Session 2006-2008
Parliament of Vi ctoria, Australia
Inquiry into property investment advisers

and marketeers

Law Reform Committee

ISBN — 978-0-9757984-4-7

ISBN — 978-0-9757984-5-4 (electronic)

Printed on recycled paper.
This report is also available at www.parliament.vic.gov.au/lawreform
Committee Membership
Mr Johan Scheffer, MLC
Member and Chair from 9 August 2007
Mr Robert Clark, MLA
Deputy Chair
Mr Colin Brooks, MLA
Mr Luke Donnellan, MLA
Mr Martin Foley, MLA
Member from 30 October 2007
Mrs Jan Kronberg, MLC
Mr Edward O’Donohue, MLC
Mr Tony Lupton, MLA
Member until 8 August 2007
Mr Brian Tee, MLC
Member and Chair until 9 August 2007
Mrs Judy Maddigan, MLA
Member from 8 August 2007 until 30 October 2007

Staff
Ms Kerryn Riseley
Executive Officer
Ms Susan Brent
Research Officer
Ms Kate Buchanan
Research Officer
Ms Helen Ross-Soden
Administration Officer
Mr Christian Farinaccio
Legal Policy Intern
iii
Functions of the Law Reform Committee
The functions of the Law Reform Committee are set out in section 12 of the
Parliamentary Committees Act 2003 (Vic). That section states:
(1) The functions of the Law Reform Committee are, if so required or permitted
under this Act, to inquire into, consider and report to the Parliament on any
proposal, matter or thing concerned with—
(a) legal, constitutional or parliamentary reform
(b) the administration of justice
(c) law reform.

Terms of reference
The following reference was made by the Legislative Assembly on 1st March 2007:
To the Law Reform Committee — for inquiry, consideration and report no later than
31 March 2008 on property investment and property marketeers with particular
regard to:
a) reviewing the regulatory framework for the provision of property investment
advice, with the objective of establishing how best to control the exploitation
of Victorians in the context of keeping the burden on business as low as
possible
b) the Commonwealth’s role in regulating financial advice, and the ongoing
work of the Ministerial Council on Consumer Affairs in considering
regulation of this area.

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Contents
List of figures ............................................................................................................xi
List of recommendations........................................................................................xiii
Glossary ..........................................................................................................xxi
Chair’s foreword....................................................................................................xxv
Executive summary..............................................................................................xxvii
Chapter one: Introduction.........................................................................................1
1.1 The context for the inquiry........................................................................2
1.1.1 Earlier national inquiries into property investment advisers.......2
1.1.2 Developments in regulatory policy.............................................4
1.2 The scope of the inquiry............................................................................6
1.2.1 The Committee’s terms of reference...........................................6
1.2.2 The Committee’s definition of ‘property investment’................7
1.2.3 ‘Property marketeers’ and the Committee’s definition of
‘property investment advice’.......................................................7
1.3 The conduct of the inquiry...............................................................8
1.4 Outline of this report........................................................................9
Chapter two: Property investment in Australia....................................................11
2.1 How many people invest in property?.....................................................11
2.1.1 The number of property investors in Australia.........................11
2.1.2 Growth in the levels of property investment.............................13
2.2 Why do people invest in property?..........................................................14
2.3 What types of people invest in property?................................................15
2.3.1 Age............................................................................................15
2.3.2 Labour status, income and wealth.............................................16
2.3.3 Household composition.............................................................17
2.3.4 Home ownership.......................................................................17
2.3.5 Other information and the need for further research.................17
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Inquiry into property investment advisers and marketeers

2.4 Why does property investment matter?...................................................18
2.4.1 The significance of property investment for individuals..........18
2.4.2 The significance of property investment for the community....19
Chapter three: Property investment advisers and marketeers............................21
3.1 The role of property investment advisers and marketeers.......................21
3.2 Who are property investment advisers and marketeers?.........................22
3.2.1 Available information about property investment advisers and
marketeers.................................................................................22
3.2.2 The Committee’s survey...........................................................24
3.2.3 How do property investment advisers and marketeers operate?
...................................................................................................27
3.2.4 The need for further research....................................................29
3.3 Problems with property investment advisers and marketeers.................30
3.3.1 Rogue traders............................................................................30
3.3.2 Are rogue traders still a problem?.............................................37
3.3.3 Systemic problems....................................................................39
Chapter four: The impact on consumers...............................................................45
4.1 Why are people susceptible to rogue traders?.........................................45
4.1.1 The complexity of the property investment market..................46
4.1.2 Financial and investment literacy.............................................46
4.1.3 Property investment ‘myths’.....................................................47
4.2 Evidence of consumer detriment.............................................................49
4.2.1 Reports of consumer detriment.................................................49
4.2.2 Under-reporting of consumer detriment...................................51
4.2.3 Consumer detriment surveys.....................................................53
4.2.4 The need for further research....................................................55
4.3 The impact on other members of the community...................................56
Chapter five: The current regulatory framework................................................59
vi
Contents

5.1 Regulation of property investment advisers and marketeers...................59
5.1.1 General consumer protection law..............................................59
5.1.2 Industry-specific laws...............................................................60
5.2 Regulation of other property and investment-related professions...........62
5.2.1 Regulation of other professions in the property industry..........62
5.2.2 Regulation of financial investment advisers and dealers..........63
5.3 Regulation in other states and territories.................................................66
5.3.1 New South Wales and the Australian Capital Territory............66
5.3.2 Queensland................................................................................67
5.3.3 Other states and territories........................................................68
5.4 Does the current regulatory framework protect consumers?...................69
5.4.1 Is current regulation adequate?.................................................69
5.4.2 Is the existing regulation enforced adequately?........................72
5.5 Industry self-regulation...........................................................................76
5.5.1 Profession-specific industry associations..................................76
5.5.2 Specialist property investment associations..............................77
Chapter six: The need for regulatory reform........................................................79
6.1 Objectives of regulation..........................................................................79
6.2 Options for future regulation...................................................................81
6.2.1 Option 1: Status quo..................................................................81
6.2.2 Option 2: Stronger general consumer protection laws..............84
6.2.3 Option 3: Self-regulation...........................................................86
6.2.4 Option 4: Co-regulation............................................................88
6.2.5 Option 5: Additional conduct and disclosure obligations.........89
6.2.6 Option 6: Licensing, conduct and disclosure regime................92
6.3 A Commonwealth or state responsibility?..............................................95
6.3.1 Advantages of a national approach...........................................95
6.3.2 Options for a national approach................................................96
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Inquiry into property investment advisers and marketeers

6.3.3 Constitutional issues.................................................................98
6.4 The Committee’s preferred framework for property investment advisers
and marketeers........................................................................................99
6.5 Regulation of property investment advisers............................................99
6.5.1 A new property investment regime or a broader financial
services regime?......................................................................100
6.5.2 The scope of the regulation − how should property investment
be defined?..............................................................................103
6.5.3 The scope of the regulation − which investors should be
protected?................................................................................104
6.5.4 The scope of the regulation − how should advice be defined?
.................................................................................................104
6.5.5 The scope of the regulation − which advisers should be covered?
.................................................................................................105
6.5.6 Regulatory arrangements........................................................110
6.6 Regulation of property investment marketeers.....................................111
6.7 The Ministerial Council on Consumer Affairs......................................114
6.8 Victoria’s ‘fall back’ position...............................................................115
6.9 The role of industry associations...........................................................118
6.10 Additional regulatory changes..............................................................119
6.10.1 Regulation of related service providers..................................119
6.10.2 Other regulatory changes........................................................120
6.11 Review and evaluation..........................................................................123
Chapter seven: Non-regulatory strategies...........................................................125
7.1 Consumer education..............................................................................125
7.1.1 Consumer warnings.................................................................125
7.1.2 Investment literacy..................................................................127
7.2 Access to market information...............................................................130
7.2.1 Public information about the property investment market......131
7.2.2 Disclosure of property valuations by lenders..........................133
viii
Contents

7.3 Industry training....................................................................................134
7.4 Consumer remedies...............................................................................136
7.4.1 Existing avenues for redress....................................................136
7.4.2 Additional avenues for redress................................................137
Chapter eight: Conclusion.....................................................................................139
Appendix A – List of written submissions...........................................................143
Appendix B – List of witnesses..............................................................................145
Appendix C – Sources surveyed for the Committee’s survey of property
investment advisers and marketeers............................................147
Appendix D – Location of advertisements...........................................................149
Bibliography .........................................................................................................151

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