Ross Greenwood speaks to Property developer Stockland CEO Mark Steinert who is urging banks to exercise responsible lending amid the uncertain post banking royal commission environment.
Ross Greenwood: There’s an issue and it’s something relating to what we spoke about on the program last night. Remember, I talked to you to an email from a man called Stuart who I spoke to today and he’s based in Brisbane. In his circumstance, he couldn’t work out, we couldn’t work out. Why it would be that he got knocked back when he wished to consolidate $30,000 of credit card debt at 15% under his mortgage at three and a half percent?
He was knocked back on this application because he was told he would not meet responsible lending laws. Or since that time it seems we’ve opened up something of a hornet’s nest. Indeed that hornet’s nest has been opened up also by Mark Stein stunned. The chief executive in Stockland who says he’s spoken with both the treasurer and the Prime Minister with difficulties of people wishing to borrow for housing being able to obtain credit even those with otherwise good credit ratings.
This is an issue and part of the problem as we have gone through some of this is we’ve discovered– Even I believe that our major banks have now started to approach the Prime Minister and the treasurer about exactly the same thing. It’s information I’ve picked up today. Now, on the subject of Stuart and his particular case, which we still can’t work out. It would seem that Stuart situation again has been handled by somebody who has been overly officious inside Westpac in this particular case.
Don’t believe it’s just Westpac, every one of the banks we’ve had examples today about. As I said will take your calls this tonight on 131873 because again a statement from Westpac today. Thanks for providing the customer details, which I spoke today as I sat with Stuart. He said to me that I would be able to provide his details to Westpac which I did. We will undertake a comprehensive review to say what’s occurred in this case. I can assure you we want to do the right thing by all our customers. This includes providing hardship relief if necessary and the responsible lending. There are cases where banks are constrained by serviceability test in rolling over credit card debt into a home loan. However, will need to ascertain all the facts in this particular case, I’ll keep you informed.
That’s the statement from Westpac. Of course, it seems to us at least any way that the new responsible lending laws have had an unintended consequence after the Royal Commission. That is the banks have become more nervous about approving loans. Other things that they might have otherwise seen as common sense is now walking out the window. Now, in the case of say, for example, Stuart, we told you about that were quite happy to leave him on a credit card with a debt of 15% but couldn’t see the sense because of the new laws and putting him on the home loan with a right of three and a half percent.
You see the craziness of this situation. Now the points in case, so for example, James is on the line, he now he sent an email. He says I can’t help but I agree with you on the remarks regarding the banks not grasping the genuine sin of the royal commission. He’s my real-life involvement. I’m involved with Shannon Eliot, the chief executive at the ANZ directly. I’m a long-established customer impeccable credit rating, my loan to evaluation ratio, my home sub 50%, so he owns most of inequity.
Multiple Sydney-based investment properties, in meeting this year, I would rather meet April. I approached the bank for some finance for improvements to these willings. They ain’t said loans officer told me that to be straightforward, stable, salaried employees et cetera. I should have an answer within one to two weeks. Obviously, one of the renovation works completed during the last financial year by June 30. Now by midday, the bank was not able to provide me with an approval.
Then now frustrated loans officer told me that ANZ significantly reduced its staff numbers in their credit assessment team as well as making changes to their IT systems creating a huge backlog. A week later a Tradesman informed me he couldn’t wait any longer and understandably had to take on other jobs. Well, then explained to the ANZ that due to their inability to provide, well they have a conditional approval. Within the time frame, they repeatedly promised their loans off as a starving for business.
Therefore induced me with promises of fast approvals. I was no longer to actually use the money in the last financial year. The chief executive Shane Elliot who’s a regular on this program basically said we can’t approve most lines quickly. My colleagues will write to let you know they could do it within one to two weeks. We did have the capability to improve in that time frame. As a result, he said there’s still problems and I would not remove the credit inquiry which now sits on his credit record. As I find out if I go through the email list here, I’ve got another dozen examples of this and we heard all your calls last night. There is something wrong.
Then you come to say Stockland today. Stockland one of the Australia’s biggest home builders and also, of course, builds shopping centers, retirement homes a whole lot. The outlook for 2020 and that is we forecast flat growth in the full financial year noting that the market conditions remain variable and we cautious of the pace of recovery in the residential market. Now the effective statutory profit down 69% 311 million dollars. One big issue that marks down at highlighted today was this whole post-Royal commission environment. It’s something needs to be really changed in order to have people and banks confident in how they’re going to borrow and lend in the future. He joins without Mark. Many thanks for your time.
Interview with: Mark Steinert, CEO, Stockland
Mark Steinert: No worries, Ross.
Ross Greenwood: What are you seeing out there? Just explain what your potential customers, what your people are telling you from the field right now when it comes to buying a home?
Mark Steinert: Well, we’ve got a lot of people who want to buy, we’ve seen a 50% increase in inquiry in Sydney and Melbourne, really around the election trough of you will. The levels of house are growing but people are finding it very difficult to get a loan. It’s taking a very long time to process the loans. In many instances, there’s all things that are being assessed that don’t really make a lot of sense as it relates to credit risk. It’s gotten a little bit better but the pace of that improvement is really going to dictate the Improvement in the entire housing market because everything else is positive. You’ve got to reduce supply, population growth, historically low-interest rates, employment growth. Everything is there for actually pretty strong recovery, but some people find it very hard to borrow.
Ross Greenwood: Where do you suspect that the problem is? I know from what’s been said today that you’ve approached the treasurer and the Prime Minister rate the difficulty. In this post-Royal commission environment, have you been able to put a finger on where the problem lies?
Mark Steinert: Well, I think the process of the last year was obviously is very Sensational Mystic. There was a lot of pressure and obviously, there was things that weren’t right. We know that the credit history in Australia is actually very good, there hasn’t been high losses and the banking sector is actually done a pretty good job for a long time. A lot of things came out of the Royal commission that created uncertainty. Always in an uncertain environment, people tend not to act so that’s translated into I think right across the banking sector.
A high degree of caution I think the Westpac case last week was a really big deal because it actually defined that there is an unlimited moral obligation when you enter into a young good faith, a contract to lend someone some money. If you try to apply that criteria to lending and you won’t lend anything and the economy will fall into a depression quite frankly because we are dependant on responsible lending. I think that’s affected the psyche and it’s affected the attitudes. I think that’s changing but the rate of change is really what’s going to dictate how the economy and the housing market performs. I think over the next 12 months.
Ross Greenwood: What you’re saying is if people can’t get the credit or the banks are overly officious because they are risk-averse not wanting to effectively go back to the Royal Commission a second time or to have the scandals break. Then ultimately people won’t be able to get the credit to be able to take up either the housing. Lot’s of people already bought the building houses on or indeed apartments where they might have put down in the 10% deposit. Then they’ve now got to get the other 90% as those apartments are completed.
Mark Steinert: Absolutely, that’s exactly the point and that’s a really big problem. Its time all to apply their own or they might want provide a home for a renter and they’re finding that really challenging. That’s a big deal for our economy. This is a seven trillion dollar asset, the biggest asset in the country. Most of our banks have 60% or more of their balance sheet in housing, so everyone’s interests are aligned here. We just got to get past. All the sensationalism has been done.
The treasurer has done a good job with this to come out with the implementation plan, and create clarity and get on with providing loans to Australians who are in a position whether they want to build a home to their family or want to build a business. Small and Medium Enterprises has been affected by this as well and for people who want to buy a property to lease to someone and get on with business because
that’s what has made it strike to the last, couple of hundred years.
Ross Greenwood: You mentioned the word depression if we can’t get those loans, if all of a sudden, we become too risk-averse when it comes to lending and who can and who can’t get along, that’s the reality of the situation. It is ultimately the ability for credit to flow, that is the grace that allows the economy to work.
Mark Steinert: Absolutely, you spot [chuckles] on a fair economy. People are making large investment decisions, and they’re going to, in good faith, repay those loans over time. Ultimately, they need those loans fulfill the dreams in many cases. That’s always been the why and the repayment histories are very strong and that economic growth in Australia, as a result, has been strong. We really need to make sure we don’t create our own goal here and get overzealous and then work out well, we really made a mistake there.
Ross Greenwood: The big mistake that I can see being made, if you think about the knock-on effect of this, is Infrastructure Australia, only last week, had a projection of Australia’s population, over just the next 15 years will rise by six and a half million people from 25 million people to 31 and a half million people. If we don’t have the flow of those homes coming through, the new homes, if you’re not building, if your competitors are not out there building to provide the homes for those extra six and a half million people plus the backlog of people who want them now, then we go back to the boom-bust cycle, because there ultimately will be a shortage of housing in Australia.
Mark Steinert: You must pay credit cost, Ross, because you’re
absolutely. By this time next year, most submarkets will be in undersupply. New supply has absolutely collapsed and that’s why affordability is the best it’s been in five years. The good news is I’m sure it’s in particular bigger part of the market. The federal government is coming with the first time by guarantee in January, so the stage is set. We just need to make sure that the banks are able to do their job.
As long as they apply responsible lending practices and they’re lending good price and do the right homework, that they’ll better move forward and grow their businesses with the rest of the nation. That’s why as I said that was packed season so important. Honestly, if you have a moral obligation on every line, you’re right, that’s impossible. You can’t judge everything with a benefit of hindsight. That’s, that’s not the real world.
Ross Greenwood: Of course, what you can have is some feeling in the community, that if I walk away from a loan and they are loan obligations, that it’s okay that it was somebody else’s fault, because they lend you the money in the first place and it wasn’t your fault for taking on that obligation that maybe you need to be responsible for.
Mark Steinert: That’s a disaster. That is a recipe for economic ruin. It might feel good in the short term, but creates no sustainable growth in the future. The fact that we have recourse loans and that people take the lending decision so seriously, individuals is what has made our country so great. It’s what’s given us 26-27 years of uninterrupted economic growth. I lived in North America for nearly eight years, and the biggest issue there is people feeling that it was okay to just try back the case in the bank and walk away.
That’s impossible when you have that sort of environment because it does create those booms and busts that you described. It creates irresponsible actions that ultimately, really affect lives negatively, so the short term win ends up becoming a really long term big problem for a lot of people. You don’t want that, that is a big problem.
Ross Greenwood: Before I let you go, I want to ask you one question about your accounts today. Now, though, the statutory profit as I said was down some 69% to 311 million dollars, a lot of that is actually non-cash write-offs in regards to your retail town centers, and also your retirement living portfolios. Just explain why you’ve written those down, what’s taking place there to cause the write down in the values of those assets?
Mark Steinert: Yes, good question, Ross. We wanted to make sure that our income is sustainable in the future, and that all the thousands of small and mid-sized businesses that are our tenants, has global businesses. As I mentioned before, franchisees and small businesses, they’re a big part of retail and retail is one of the biggest employers in the country. In the last 18 months, it’s been very hard for them to get lunch, because quite often their home is also part of the collateral, so an improvement in the housing markets a big deal not just for housing, but too small and medium business, which is the last slide of the economy.
Going back to your question, we’ve taken a decision that if we have rents that are not sustainable for a business right now, or we need to re mix the tenant to make it more convenient, or make sure that we had the tenants in there, the customers want that we will make the market, and so we’ve lowered our long term growth forecasts in rents. We’ve reduced rents in a number of limited situations to create those outcomes. As a result of that, and as a result of some increases in capitalization rates and also land tax and rights that went up well above forecast, particularly in Queensland in South Wales, those things have impacted the book value of some of their large retail town centers.
That’s what’s in that number. If you look at the, what we measure, which is funds from operation for poor earnings per share, that back was 5.1%, which was pretty solid rate, well above the sector average. While we expect that earnings per share will be flat in 2020, around this concern about credit availability. As the largest residential developer in the country, and we took 200 basis points of market share in the last 12 months. We have 15% of the whole market and customer satisfaction ratings are over 93%.
We have leverage, to the extent that things pan out better. We need to make sure that we’re very realistic in how we look at the market and how we look at what’s going on. That’s one of the reasons why we felt it was very important for everyone to know just what the rates are and impacts are of this credit situation and more. Now we really need to get on as you followed it and address this big issue because it’s affecting the whole nation.
Ross Greenwood: There’s no doubt about that. The chief executive of the Stockland, as he says Australia’s biggest housing developer brings more house than any other organization onto the market. You can see the problems of exactly what we all have to do last night about the bank’s, about the Responsible Lending laws being really literally written in and as I was like, causing all sorts of anomalies. You can see they’re potentially even having an impact on the housing market as well. Mark Steinert, I appreciate your time in the program as only.
Mark Steinert: Thanks, Ross, appreciate it. Have a goodnight.
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