PICA warns of 'clear evidence' of questionable practices following Macquarie move
The Property Investors Council of Australia (PICA) has warned of “clear evidence” of questionable practices among buyers agents, mortgage brokers, accountants and property investment firms that risk undermining consumer protections and market stability.
PICA chair Ben Kingsley (pictured) called out a “growing number of operators (that) are marketing quick profits through residential property, using tactics that overstretch current credit lending rules or outright breaches of the law – particularly when (it) comes to investment advice around recommending trust entities or setting up an SMSFs without proper licensing”.
Kingsley’s comments follow a move from Macquarie Bank last week to put the plug in home lending to trusts and companies.
In broker correspondence seen by MPA, Macquarie cited “the emergence of strategies on social media aimed at maximising lending through trusts and companies”.
As residential property is not technically a financial product, the concern is that unlicensed operators – including brokers – are operating in a potentially illegal financial advisory grey area.
Kingsley called Macquarie’s move “a very positive development”, but he remains concerned “about operators promising unsuspecting consumers access to ‘unlimited borrowings’ through multiple trusts or companies – all on the false promise of fast and easy wealth creation. That sort of message has no place in responsible lending”.
“We risk turning residential property from a long-term passive wealth vehicle, that provides important rental accommodation supply across Australia, into a short-term speculative trading asset,” Kingsley warned.
Kingsley pointed out that, according to ASIC Regulatory Guides 36 and 175, advice around structures that influence investment decisions – such as gearing strategies via a trust or SMSF – can be classified as financial product advice. This would necessitate an Australian Financial Services Licence (AFSL).
These are huge legal penalties for providing unlicensed financial advice, including up to five years' imprisonment, civil penalties exceeding $1.5 million for individuals, and $15 million for corporations under Section 911A of the Corporations Act.
In a letter sent to key trade associations and real estate institutes across Australia last week, PICA raised the following key concerns:
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Unsubstantiated investment return claims in marketing, often using selectively favourable metrics
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Unlicensed financial advice in the direct or indirect promotion and facilitation of entity structures (trusts or SMSFs)
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Promotion of buying via Trusts and SMSFs to bypass lending restrictions and scale quickly for fast profits
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Tax-minimisation schemes portrayed as more effective than home ownership
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Get-rich-quick narratives targeting inexperienced and naive investors
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Transparent consumer disclosures with respect to full disclosure of cross-business referral or commission payments, often hidden from unsuspecting consumers
It is understood that other lenders apart from Macquarie offer company and trust lending, although this can be a legitimate offering with the appropriate credit policy and application disclosures.
“It’s not just what you say – it’s how you influence,” Kingsley added. “Encouraging someone to set up a trust to buy property is not just tax or legal structuring advice. It’s product investment advice. It’s regulated. And unlicensed operators are putting themselves and consumers at serious risk.”
While PICA’s comments are targeted at bad-faith actors in the property space, members of the broking community have supported Macquarie’s move.
Troy Phillips, managing partner at Sydney-based brokerage FirstPoint Mortgage Brokers, told MPA: “We always viewed it as a grey area; the original intent was never to give borrowers access to significant leverage purely off a declaration.
“Macquarie’s change simply closes an unintended loophole around serviceability. Previously, borrowers could exclude property-related debt held in standalone trust structures from assessment, based on a director’s declaration, it wasn’t designed for that purpose.
“The policy update makes complete sense. It strengthens responsible lending and protects borrowers from taking on unmanageable debt levels. Macquarie remains a market leader in the self-employed space, and this move only reinforces that position.”
Broking industry responds
"Mortgage brokers abide by responsible lending obligations and the best interests duty. In terms of decisions made by lenders, each lender has a different risk appetite and makes their own commercial decisions," said Peter White, managing director of the Finance and Brokers Association of Australia (FBAA), in response to PICA's latest comments.
In a statement shared with MPA, Mortgage and Finance Association of Australia (MFAA) chief executive officer Anja Pannek said brokers “operate in one of the most highly regulated parts of the financial services sector”, adding that the profession functions under the Best Interests Duty introduced by government reforms.
“I believe mortgage brokers take their client obligations very seriously,” Pannek said. “This is highlighted clearly through the low level of complaints we see going to AFCA.”
Pannek acknowledged that social media has become an essential communication and engagement platform for brokers but emphasised the need for responsible use. “It’s important to note that social media is an important communication and client engagement tool for brokers,” she said. “We provide resources and support to guide our members when developing social media content and encourage them to do so responsibly and effectively.”
