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The Royal Commission is coming straight for the property market…but just how fast?

Will the Royal Commission impact the property market? Anna Porter, valuer, property commentator and Suburbanite CEO explores the immediate and long-term effects of the outcome. She also reveals why the findings essentially will ensure the rich get richer and every days Australians will be the losers.

“The market has seen worse but let’s remember it is very forgiving and will not be impacted broadly,” says Porter.

“There are some findings that will have a small flow on impact, let’s call that collateral damage but a broad impact will not be felt. We have seen far more impactful things happen to the property market over the years like the GFC, floods, government give and take away incentives, and grants for international buyers, first home buyers and policies being fiddled with for taxing of property. None of these have had a lasting impact on the market but were more directly targeted at the asset. So we feel this Royal Commission will be a flash in the pan for the property market. It will be far more impactful on how advice around wealth and lending is delivered and how people interact with advice, with some minor flow on effect to the property market in particular sectors or scenarios,” continues Porter.

A series of recommendations around insurance have been handed out by the Commission, some of which are going to be the collateral damage Porter talks of.

“By removing fees for planners placing people into insurance products people will be lead to being underinsured,” warns Porter.

Underinsurance will have an effect on the property market.

“The issues around underinsurance of life and trauma and disability cover will lead to more people being underinsured and when a family is impacted by trauma, like illness, death or injury this puts financial stress on a family that does not have appropriate insurance. Often leading to distressed sales of housing assets, so in years to come that in itself will impact the market in various scenarios,” explains Porter.

Another recommendation proposed by the Commission was the removal of trail commissions for brokers on loans.

“To explain, this is where a broker gets not just an upfront fee from the bank when they place a loan for a client but also an ongoing monthly fee known as a trail for the life of the loan,” says Ms Porter.

“Moving to a user pays system which seems to be the direction in which the industry will be heading, will result in brokers and planners leaving the profession in droves – including the good ones,”

“This will mean the wealthy will still have access to advice and be willing or able to pay for it while everyday Australians won’t get as much advice from brokers or planners as it will be less accessible and less affordable,” says Porter.

Additionally the commission has recommended vertical integration and ‘cross selling’ should be outlawed. This is where you walk into your bank to set up an account or get a loan and they sell you on super advice, restructuring or getting life insurance.

“Many Australians only get this type of advice because they walked into their bank and if not for this vertical integration they will not get any quality advice in their lifetime on financial services and wealth. Yes, some banks have done it poorly and not had the clients best interest in the process, but it seems that they are throwing the baby out with the bath water here,” Says Porter.

“This will result in the wealthy staying wealthy through good advisers being on their team, but everyone else will lack quality advice for buying property, getting loans structured and setting up their retirement and their super,” says Porter.