09 Mar The areas to avoid + Kiwis love their banks + What to sell and what to hold
Highlights from this week:
- History reveals the suburbs to avoid
- NZ customers give their banks a big tick
- A lender that cares
- Luxury property demands superior marketing
- Knowing when to fold
NZ customers give their banks a big tick – Michele Levine
Kevin: While the Finance Royal Commission in Australia has had a negative impact on bank customer satisfaction in Australia, particularly the big four, it appears that this has not generally been felt by the Australian banks operating in New Zealand. Customer satisfaction with banks in New Zealand in the 12 months to December was 79.1%, according to some research from Roy Morgan. Joining me to talk about that, Michele Levine.
Kevin: Michele, thank you very much for your time.
Michele: My pleasure.
Kevin: Interesting, isn’t it, that the same banks in Australia operating in New Zealand seem to be generating some customer satisfaction. Do they operate differently, Michele?
Michele: Well, I think they do operate a little bit differently, and whether the whole thing about the royal inquiry has made such an impact in New Zealand as Australia, I’m not sure.
Michele: I think we have to realise, though, in Australia, although customer satisfaction took a bit of a dip with the royal inquiry, and net promoter score, that’s the proportion of people that in fact would recommend a bank, took a bit of a dip, it really didn’t fall in a hole. What’s been amazing is the degree to which customers have continued to bank with the banks and have continued to be satisfied. But what our research in Australia is showing is that distrust has skyrocketed.
Michele: So, we still, in Australia, are sort of satisfied with the banks’ performance specifically, as customers, we trust the banking system as such, but we are very angry, frustrated, disappointed and distrusting now of the major banks. So, in New Zealand, I’m actually not terribly surprised to see no real drop in satisfaction or in the willingness to recommend these banks.
Kevin: Okay, well let’s find out a little bit more about that, because there are some banks that are purely New Zealand banks, like TSB. There are a couple of others-
Michele: The Kiwibank and the Co-op.
Kevin: Kiwibank, yeah.
Kevin: There are things, too, like KiwiSaver, which has generated a lot of really goodwill about what not so much the banks are doing but what the government are doing through the banks in helping people save money.
Michele: Yes, I think we’re going to see a lot more of this, what we might call socially responsible financial activity and discussion, and I think people will respond really positively to that.
Michele: But it is interesting, whenever we survey people in New Zealand and ask them about their satisfaction with banks or retailers or really anything, New Zealanders really love New Zealand products. They really love their own bank, their own retailer, and it’s not surprising, but I think it’s terrific to see.
Kevin: It is indeed. Let’s have a look at some of the results that came out of the survey, ’cause I think TSB Bank rated highest in terms of customer satisfaction. Is that correct?
Michele: Yes, it sure does. In terms of customer satisfaction, TSB Bank have 88.5% of their customers are satisfied, so that’s extraordinary. That’s fantastic. And that’s followed by Kiwibank, and they’ve got 84.6, so just on 85% of their customers’ satisfied. And then The Co-operative Bank, 81.7%. So these three New Zealand banks are really doing extremely well.
Michele: But you have to say even BNZ, 80%, Rabobank, 79.5, ASB, 78.1, and then ANZ’s only a little behind that at 77.1, Westpac just below at 76.5. So, people are actually pretty satisfied with their banks.
Kevin: Has this shown an improvement year on year, Michele?
Michele: There’s a little improvement overall year on year in New Zealand, about .7%. But I think what we’re actually seeing in the broader picture, it’s like in the ’80s, we loved our banks and our bank managers, and then we sort of lost touch with our bank managers as people and satisfaction with banks in both Australia and New Zealand crumbled a little bit. And then what we’ve seen is we’ve seen the digital take-up, wonderful online banking systems and apps that actually make it really easy to bank, and people who are using those are much more satisfied than those who aren’t.
Michele: So we’re seeing some really interesting, I think, service level improvement in satisfaction across both Australia and New Zealand.
Kevin: I think if you look at the top banks, those above the ANZ in New Zealand, they all, ASB, Rabobank, BNZ, Co-operative Bank, Kiwibank, and TSB Bank all improved their rankings year on year. ANZ was the first one to take a bit of a nose-dive.
Michele: That’s right, yes, they’ve all improved by a little bit. Rabobank up by just over 4%, Co-op Bank just under 4%, and the TSB Bank at plus 6%, so that’s a really good improvement.
Kevin: Yes it is. It’s going to be interesting to watch, Michele. It’s a great insight as to how people are really feeling about the banks and what’s going to happen. We’re seeing a number of, I guess, non-traditional lenders emerging in the Australian market, and one wonders if the same will happen in New Zealand. Probably less likely I would think.
Michele: I think it will happen in New Zealand. I can’t see why it wouldn’t. The only reason you might say the New Zealand market’s a bit small, but these non-traditional lenders are not necessarily wanting to employ a lot of people or need really big dollars. A lot of them are digital. So I would expect to be seeing changes in New Zealand as well.
Michele: But every industry is being disrupted. There’s no question, and I think what’s really important in banking or any industry is understanding your customers. The fact that the banks are really focused on satisfying their customers is a very good sign. It means that they’ll keep in touch with customer needs and try and make sure their products and services and the way that they inform their customers about their options, I think all of those good things will stand them in good stead against alternatives.
Kevin: Very good. Wonderful insight.
Kevin: Michele, thank you for sharing your knowledge with us too, and thank you to Roy Morgan for making that research available to us.
Kevin: My guest has been Michele Levine from Roy Morgan Research.
Kevin: Thanks, Michele.
Michele: Wonderful. Thank you.
Knowing when to fold – Jeremy Sheppard
Kevin: Well as we can see, the thirst for knowledge, for accurate property knowledge is growing all the time as the market really tightens worldwide. People really need some high end information about where the market is headed. I was delighted to read about a new website that’s called Sell or Hold. As the name implies, this is a site that’s devoted totally to telling you where particular markets are headed. New research has revealed the locations across the country where property prices will not even keep up with inflation over the next three years. You can get the information in an analysis on the website sellorhold.com.au. One of the drivers behind that is Jeremy Shepphard who joins me now to have a look at this. Jeremy, thank you very much for your time.
Jeremy: Thanks very much for having me on the show, Kevin.
Kevin: It’s my pleasure. Tell me about Sell or Hold. How does it work? Why have you developed it?
Jeremy: Well, it works by trying to estimate where property markets going to be in the next few years, and it was born out of an enormous number of clients that we saw, who were asking this question, you know I bought this data, bought it three or four years ago, it has not moved, or even worse it’s gone south. There’s been this very subjective sort of decision making process about whether to offload it or not, and so we thought there’s got to be something that we can provide that’s far more objective, and so we do an analysis on their circumstances and this is exactly what the software does. It crawls all over their property and then it crawls all over Australia and finds alternative markets, and it checks to see whether they’ll be possibly in a better circumstance if they were to sell, and replace their property with an alternative, or whether the exit and re-entry costs are simply too prohibitive and it’s better to just hang in there.
Kevin: Yeah, because some of the wisest investors over the decades, we’ve seen some people build enormous wealth out of property with a buy and hold mentality. In other words, never sell. You know, buy it and I will never sell it, it will grow in value.
Kevin: That’s obviously changing, as we can see some of these markets performing at totally different levels, so the buy and never sell mentality is probably a bit out dated.
Jeremy: Well, it was drummed into me, when I was a novice investor that you buy and never sell. I ran into circumstances myself where I really should have kept my eye on the property markets that I was exposed to, because some of those did turn south. But it’s been excellent advice in the past, because we don’t really know where property markets are going to go, so just hang in there, and sooner or later growth will do its thing.
Jeremy: But what we’re finding now is that with the moving forward as technology and the ability to analyse data and a lot more data sets becoming available, it’s possible now to have a much clearer idea of where property markets are going. There are some alarm bells ringing in some markets around the country right now, where really investors would be much better off if they offloaded rather than digging deep for the long haul.
Kevin: Well you put the number down as about 860, well you said nearly 860 markets in the nation that are on track to post price falls over the next three years. That’s a big statement. Are there any states that really jump out?
Jeremy: Well, it’s interesting. There was a lot in New South Wales, which you’d expect from in Sydney.
Kevin: Wow. Yep.
Jeremy: Then the problem areas with Western Australia, and Queensland, and some of those regional markets where the economy has just fallen apart with the change in the resources. And some of them are unit markets, possibly in capital cities where there’s just tremendous over supply, so developers are seeing opportunities and have been given permission to just go crazy, and there’s just too many units. So a lot of the off-the-plan type unit developments have popped up.
Kevin: We mentioned there units. I’m just looking at the bottom five property markets by state and territory. Actually, one of them is a housing. Well, several of them are housing markets. It’s not all units, is it?
Jeremy: Yeah. That was a big surprise actually-
Jeremy: … that roughly half the markets … Now bear in mind that this is … These are the worst five in each state, so the ACT which is less than one percent of the country’s market gets a good hearing there. But New South Wales of course is a massive state, and yet it’s only one small portion. It’s one-eighth, because there are eight states and territories, so it’s a little bit biassed in that respect. But, yeah, there are houses and units across the board, so it doesn’t really mean that every market that’s a troubled market is an over supplied unit market. The problem with over supply is it’s so easy to knock down a house next door, and build a whole bunch of units. Of course, units are more susceptible to over supply than houses. Houses require more land, and a little bit more infrastructure. But, it’s not just over supply that’s the problem. Sometimes it’s just demand, and demand has just fallen out of the market.
Kevin: Mm-hmm (affirmative). When someone jumps into the site, and it’s called sellorhold.com.au, what can they expect to see and what level of reporting is available to them?
Jeremy: Well, they’ve got to put in a lot of their own information, because the system in order to make a fair assessment has got to understand their particular property details. One investor could own a property for, say that they’ve had it for the last three years, and it’s gone nowhere. They’re not going to have any capital gains tax if they sell, which makes selling quite good. But if it was a different investor that had owned the property for 20 years, it may have tripled in value, in that time, and they have a huge capital gains tax liability, and therefore the system may say don’t sell. It really comes down to the individual as well as the market, and that’s why they’ve got to put in so much of this detail. But, they’ll get a report listing all the alternative markets they can invest in. A big, long report with all the reasoning behind it, capital growth forecasts, and a breakdown of their current circumstances and where they could be better off.
Kevin: I’ve been talking to head of research Jeremy Shepphard at the website sellorhold.com.au. Jeremy, we’re out of time, but thank you so much, and all the best for the site.
Jeremy: Thank you, Kevin.
Kevin: We’ll watch it. Thank you.
Jeremy: Thank you.
Luxury property demands superior marketing – Michael LaFido
Kevin: Michael LaFido is a top producing luxury realtor based in Chicago. I had the pleasure of meeting Michael in New York recently and have read his book about marketing and selling luxury property. In fact, I’ve got it here with me right now. Michael clearly demonstrates the importance of superior marketing when positioning a home for sale versus the traditional form of marketing. Michael is the founder of the Marketing Luxury Group and as I said, is the author of a book called Marketing Luxury and the best-selling book, Cracking the Real Estate Code, which I haven’t read, but no doubt I will at some stage in the future. Good day, Michael. How are you?
Michael: Hey, very good. Very good. We also have the book that I gave you called Luxury Listing Specialist.
Kevin: Yeah. Oh, okay. There’s three of them. I thought Luxury Listing was … Oh, I see. Yes. Yes. Luxury Listing Specialist. Yeah. Fantastic. Well, welcome to the show. Great to catch up again. It was nice to see you in New York.
Michael: Yeah. It was great to meet you and I love what you guys are doing.
Kevin: Thank you very much. Hey, how has marketing a property changed in the last decade, Michael?
Michael: That’s a great question. With the shows and the state’s Million Dollar Agent, and all these other TV shows, really sellers expectation of what an agent is going to do to market their home, the bar has been raised, which is a good thing. I believe the bar has been low. There’s a lot of traditional real estate agents that sell high end and luxury homes by traditional, I mean they’re inside the box, or maybe a little bit older in age, and they don’t adapt to technology. Video is one thing that marketing … Many agents are incorporating video now to market these high end and unique properties that in years past, perhaps was only for that really amazing property that’s multimillion dollars, etc. Now, the bar has been raised where many sellers are expecting it on other price point homes.
Kevin: It’s interesting when we talk about video and I want to stay on this just for a minute, because I think a lot of agents think that producing the video is about displaying their own personality, when it really should be about displaying the personality of the property.
Michael: Yes. Yes. Absolutely. It’s not about the agent.
Kevin: That’s right.
Michael: It’s about the property. It’s about the lifestyle you’re going to get from purchasing the property and all the amenities around the home. That’s really where the best agents know how to articulate and know how to focus and really pinpoint those best features and really downplay the least favourable features of a home. Sometimes you can show too many photos and too much video of parts of a home or part of a location that you really shouldn’t be accentuating.
Kevin: Yeah. Let’s talk about the skills of an agent. When a seller is looking to employ a broker or an agent, they’re very good at selling themselves for a start, but what should a seller look for in a good marketing agent?
Michael: Yeah. A great marketing agent does several things. First off, they’re well connected within the real estate world, right? You never know who your next buyer would come from and so you want to interview agents that are well respected and well connected and they have a track record of selling similar homes as to yours, as to whoever is doing the interview. The seller should also ask them, “Are they a team? Are they individual agents?” That sort of thing. Because many times, there’s an old adage, jack of all trades, master of none, and there are some agents that do everything, but if they’re doing everything, they can’t focus on selling your home.
Kevin: What are the important elements of a successful marketing campaign, Michael?
Michael: Well, every property should be looked at as a unique product. Let me give you an example. You can’t open up a franchise like McDonald’s or one of these other franchises that have global franchise opportunities without following a system. So top agents have systems in place. Top agents have a marketing system in place. However, they also have the ability to adapt and customise and make this one of a kind marketing plans for your property because every property is unique unless it’s in a cookie cutter neighbourhood, in a subdivision and the same homes are all around you. Every property has got unique features, and so an agent needs to have a proven system but also the flexibility to adapt that marketing campaign around that property, accentuating the best features of that home and that property.
Kevin: That’s such a great point, because many times, we’re actually challenged with the opportunity of marketing a property in a cookie cutter type environment where all the houses are the same, but every one does have its own unique offering, I guess. Can I take you in another direction, Michael? In your book Luxury Listing Specialist, you talk about proactive selling. What is that?
Michael: Yeah. First off, proactive selling is defined as basically not waiting around, not doing the same thing as everyone else. Proactive selling is basically addressing any … I like to use the term elephants in the room. Is there anything that’s very unique that needs to be addressed before selling your home? I.e. deferred maintenance perhaps, wear and tear, cosmetic, landscaping, curb appeal, things that will show up in photos or show up during showings. Proactive selling is basically taking potential objections off the table to help get the property sold. That’s proactive selling versus reactive selling.
Michael: Reactive selling is, “Hey, yeah. The carpeting needs to be replaced or this needs to be fixed,” or that sort of thing, but we’re not going to address it unless somebody brings it up. Well, if it’s so obvious, you need to address it. That’s one example of proactive selling. The other example of proactive selling would be warranties and taking care of everything. When I’m dealing with a seller, I like to get all of our ducks in a row. I like to get all the receipts, all the warranties, everything that has been done to the home, i.e. brand new roof or furnace or heater or boiler, whatever it might be. Get all the paper work and have that ready for both the buyer and their agent because you want to serve everything on a silver platter to both the buyer and the agent to make the process, to make the experience of buying your home more enjoyable, almost like VIP service because many times, the agent will steer or push a buyer towards the home where everything is nicely done for them and made their job easy.
Kevin: Yeah. I’m also fascinated with your term of event-based marketing. Can we just talk about that for a moment? What is that?
Michael: Yeah. Events-based marketing is when you are marketing a home or when I’m marketing a home as an agent or coaching an agent, we want agents to deploy event-based marketing as part of their marketing campaign. Event-based marking is basically inviting, targeting high network individuals or potential buyers or key influential people, inviting them to some kind of gathering at the property. Now, many real estate agents have open houses for other real estate agents. That’s not what I’m referring to. That’s pretty boring. That’s what everybody else does. I’m referring to some kind of VIP type of event where you’re bringing in nonprofit, bringing in food, bringing in music, bringing in some kind of personality, whether it be a chef, whether it be a celebrity, and giving VIP royal treatment to everybody and remembering that the power is in the invite because many people won’t be able to attend the event because of conflicts, that sort of thing. However, they’ll remember the property and the home will be top of mind awareness in case they know of anybody looking to buy a home in that particular market.
Kevin: Yeah. It’s such a great point. Let’s round this out talking about social media. Social media, do you see it playing a more important role in marketing? Do you employ it?
Michael: Oh, yeah. Social media is huge. With different avenues, you can target your audience. Not to try to confuse anybody here, but you can basically … For example, on Facebook, you can create what’s called custom audiences. Let’s just say there’s 198 people that you want to target. You can create an ad, and you could tell Facebook in this example, “Hey, I only want this ad to show up on these 198 people’s Facebook pages.” Now, your top of mind awareness and your cost per ad goes way down, but now you’re specific. Your message could be more specific to your audience versus the old put an ad out there and hope it goes to the right audience.
Kevin: Yeah. catter gun. Yeah. Hey, Michael. We are out of time. It’s been a delight talking to you again. I’d love to have you back in the show. I want to talk to you about publicity and media releases and so many other things too, but we’ll make another date for that. Michael, thanks again for your time. The website to reach Michael and his team is MarketingLuxuryGroup.com and what’s the email address, Michael?
Michael: Yeah. The email address is just firstname.lastname@example.org. Michael, M-I-C-H-A-E-L@marketingluxurygroup.com.
Kevin: Wonderful. Great talking to you, Michael LaFido. Thank you very much for your time.
Michael: Appreciate it. You’re welcome.
History reveals the suburbs to avoid – Anna Porter
Kevin: Earlier in the show, we talked about… we looked ahead at what suburbs are likely to fall in value over the next few years. Always interesting to look back and it’s staggering when you do that. Media constantly, of course, declaring certain suburbs as hot spots for investors. They often fail to acknowledge that it’s not always the case. The Suburbanite negative growth report exposes some areas that investors should avoid, and should be aware of. Joining me to talk about that report, Anna Porter from Suburbanite. Anna, thank you very much for your time.
Anna: You’re welcome.
Kevin: Firstly, tell me how you went about putting this research together. What was your source?
Anna: So, we looked at the Core Logic and SQM data and collated it across both those data forces, and really, to be honest, it was just a lot of time. And our property and research team just pouring through data for weeks and weeks on end. And then figuring out which markets had declined, and we’ve ruled out any markets that have had one percent or less decline because that tends to be a statistical anomaly. So, if anything had more than one percent change in the negative.
Kevin: You came up with about 1400 I believe, is that right?
Anna: Little bit over 1400, yes. So, it was actually an upside about 37% from last last year’s list, so it was more suburbs that hit the list this year than for the year before. It’s quite interesting.
Kevin: I guess what’s really interesting, for me and for our audience I believe, is to identify and I’m going to ask you to give me the top five learnings you took out of this. But if you can also quantify it for me? What are the lessons we’ve learned from those falls, and what do they tell us about the future Anna? Could you maybe run through the top five?
Anna: Yeah, sure happy to give you the top five. And something very interesting overarching is in New South Wales we actually saw 237 more suburbs hit the list, and for Victoria an extra 118 so clearly there’s a big change in those two markets, and the least changes are actually seen in a ACT and WA. So, that would talk a little bit to stability in those two markets.
Kevin: Okay well, look does … let me ask you a question about that Sydney and Melbourne in particular? Were they the regional areas of New South Wales or were they actually in Sydney and Melbourne?
Anna: That was both. It was throughout the metropolitan Sydney and metropolitan Melbourne, and then reaching out to areas like say your Wollongongs and your Geelongs and areas like that. Some of those started to hit the list, but more so in the metro area than the regional areas is what we were quite surprised at really.
Kevin: Well, give me your top five.
Anna: Top five, yes let’s do it. So, let’s start in those two powerhouses New South Wales. So, we saw the unit market … we’ve gone through unit and housing data, but I’m thinking that the unit market here is most interesting in Wollongong. So, the two five zeros are a Postcode which encompasses Wollongong CBD and Mangerton. The unit market took a 43.9% dive in values over the 12 months through 2018. So, what’s underpinning that is … it’s a couple of things. There’s a bit of a turn in the market anyway which is a cyclical thing since Sydney and Wollongong markets are starting to come off the boil, and we’re starting to see a change of gear. But, the reason why this markets been hit hard so hard in particular, and it’s double digits there, is because of an oversupplied unit stock.
Anna: So, when you couple a changing market cycle with a big oversupply issue this is when we start to see the real fallout here. It misses areas that … we often say to people when they’re starting their investment journey, “Be cautious of the unit markets. Be cautious of over supply markets for this exact reason.” Because when things turn a corner …” and let’s give this context. There’s been good growth coming through that market for the last three or four years, but now the retraction is more significant than say many other market’s in the area of I’ve seen.
Kevin: Number two?
Anna: St Kilda houses was an interesting one that we’ve seen. So, that’s had a negative growth of 28.7% that’s just under 30% negative for St Kilda houses. Now by all means St Kilda is a very sought after desirable suburb. So there’s nothing there that would intrinsically say that it’s going to underperform. It is just that timing in the cycle, couple that with we’ve got a royal commission coming through the market, we’ve got lending restrictions, and you’re in a market there that’s not a cheap market it’s quite unaffordable. Those things start to have that layered impact and can really hit it fairly hard. So, anyone living or buying in St Kilda if they’ve got an eight to ten year view you’ll be just fine since it’s fundamentally a great area. But right now there’s certainly some pain to push through in that area.
Kevin: Number three?
Anna: So, number three’s an interesting one. It’s actually the postcode is 4510 and I’m sure all your listeners know exactly where that is of course.
Kevin: Queensland of course somewhere. I can tell by the four.
Anna: So, it’s Beachmere units. Now Beachmere’s right near the Deception bay so the reason I found it interesting have a 49.8% negative growth. So that’s quite significant, so basically what we are saying is that half the value has been gashed over the last 12 months, that is quite significant and the reason I find that really curious is that there is a lot of investment firms in the market that are strongly recommending investors get in to units up around between Deception Bay in those sort of areas.
Anna: I know, and what we’re seeing which is what concerns me the most is why are firms recommending people to invest in areas that is significantly going backwards and fundamentally the lack of employment, there’s lack of population growth, there’s a lack of these drivers that will create a turnaround so we see that there’s a couple of years here that aren’t going to be good for this market. It’s not gonna change overnight so you’ve gotta wonder if the investors firm is actually working for the developer or working for the investor when they’re recommending it.
Kevin: Well fairly, obviously for the developer so …
Anna: That would be whats indicated because there is absolutely no reason I would encourage someone to get into a market that’s seeing that much of decline when the fundamentals don’t support that turning around overnight.
Kevin: Okay, so that’s Beachmere Units, what’s number four?
Anna: Number four is, it’s a bit of a tale of two cities. So we’re in Tasmania now and it’s East Launceston Units so that’s the post code of 7250 is encompassed in this data and that has had negative growth of 14.2%. Now the reason I said the tale of two cities is now we’re hearing about all this great growth coming out of the Tasmanian market and through, hubs like Launceston but then the unit market here is really struggling so we’ve gotta be mindful of it, it certainly has to be some nous on the ground by investors to get the right asset in the right market that’s gonna perform because… just because some of the markets are performing doesn’t mean it’s going to be the whole market. You’ve really still got to be careful.
Kevin: It’s even the class of the market too, whether it’s houses or units as well. Isn’t it?
Anna: Exactly, that’s a very true story.
Kevin: Okay, number five?
Anna: Number five is one of my favourites, this is units in Canberra. So we’re seeing in particular the suburb here that I’ve got is Phillip at negative 26.4%, we’ve even seen through Canberra CBD has had a significant decline in unit values in the city at 15.6% negative. Now, this again is about the right asset class. So Canberra as a capital city is actually going up in value, we had a lot of trouble finding many suburbs at all that had negative growth in housing sector so there is strong growth coming through yet the unit market is still retracting and double digits, it’s not just a little bit. This is significant. That tells a story that even when the housing market going up, units are not an appropriate product to Canberra, they’re not performing well, it’s not the desired product and there’s too many of them being built so again it’s a supply issue and its having a real impact on that sector.
Kevin: Yeah, wonderful insights Anna. There’s so many, we haven’t got the time to go through the 1 400 that you’ve found but it’s a great report. I imagine it’s available at your website?
Anna: Yes, it sure is at suburbanite.com.au or on our Facebook page. We certainly can give people access to that, or just send us an email and we can send that whole report over so you can see if your suburb is on the list.
Kevin: Very good, that is s-u-b-u-r-b-a-n-i-t-e .com.au, Anna Poter has been my guest from Suburbanite. Thank you Anna, talk soon.
Anna: You’re welcome.
A lender that cares – Nathan Walsh
Kevin: What’s called the trust gap, the gap between borrowers and lenders grew strongly through the Banking Royal Commission in a market that is ripe for disruption. Following the fall out from the Royal Commission a company called Athena has been chipping away for two years to build a very different home lender model. Joining me to talk about that Nathan Walsh, one of the founders of Athena. Nathan, thank you very much for joining us. And congratulations on what you’re doing.
Nathan: Thanks Kevin. Fantastic. Thanks for having me.
Kevin: It really has been ripe for disruption and the banks are really copping a bit of hiding. Now tell me about Athena, your business model, how does it work?
Nathan: Yeah, so Athena launched this week. So we really launched with a mission about how to help save Aussies a whole bunch of money, help them pay off their home loans faster. So launching with some really competitive rates, so 3.49% on your own home and from 3.89% for investors. So really for a family switching from typical big bank rates that could mean saving tens of thousands of dollars over the life of their loan.
Kevin: Yeah, but it’s not so much about rates is it? That’s what we’re learning because I think some of the research has shown that customers cited the most common reasons for the decrease in this trust gap was the fact they felt like they were being ripped off. They felt the banks were dishonest and there was a lack of transparency. So it’s more than just rates isn’t it?
Nathan: That’s absolutely right Kevin. So we’ve been listening to Aussies and basically 80% are now saying they’d like to find a more trustworthy home lender. It’s only one in four borrowers who think their lender cares about their financial well being and one in five think they act in their best interest. So I think that translates into things like real concern about the home loan rate bait. Being lured in with shiny rates and then being stung with rate creeping in fees. Loyal customers are paying hundreds of millions of dollars more every year than they new customers on rates.
Nathan: So you’re absolutely right. It’s much broader than just the headline rate.
Kevin: And Nathan when we hear things like customers are concerned that the banks really care about them. I was staggered to see that nearly all borrowers 93% actually want to pay off their home loan faster but less than one in five thinks their lender actually wants them to do that. And you can understand that when the banks are seen as really chasing more and more profits. So therefore, the longer they keep someone in a loan, the more profitable they’re going to be.
Nathan: That’s absolutely right. It is time is money. The shorter the loan, the less you pay and the experience with borrowers is when they’re getting on top of things, they get the phone call of, “Would you like a credit card with that?” How do you increase the credit. As opposed to, how do we really help you own the home and not the bank.
Kevin: It’s a great sentiment that you put forward with respect, how can we believe you? What is the basis of Athena? Why are you doing this?
Nathan: So as we sort of talked about. We’ve been on a two-year journey really looking to reinvent the model. So we should be clear, so we’re proudly not a bank and never will be. So that means we’ve been able to cut the branches and bankers and overheads so we can pass on killer rates to borrowers and cut the fees.
Kevin: But how do you do that? How can you run a more low cost model and be successful than the banks?
Nathan: So ultimately it’s a question about being much smarter around technology. So how do we create a very efficient platform focussing in on what a homeowner is asking for. What are their needs and how do we meet those? We’ve also been very focused on reinventing the model around the funding of the loans themselves. So looking at banks. Sourcing half a trillion dollars out of the superannuation system, banks, beautiful deal for the banks, making fat margins on that money. We’ve been able to source that funding directly. Which again, enables us to deliver a better deal to borrowers and then really help them meet that goal of how do you pay off your home loan faster.
Kevin: I noticed that your backdoor supported by Macquarie Bank. How does that make you different? Or how are you going to standout from the other banks?
Nathan: So, you’re right. I’ve very delighted to have support from Macquarie and Hostplus and a number of the other top VC firms in the country. Look, I think ultimately this comes down to a question of how do we be very single-minded about helping customers meet those needs and that’s the beautiful thing about working for a type of brand like Athena is we live or die on our ability to meet those customers needs.
Kevin: How secure is it if someone takes a loan with you? I mean that’s one of the foundations I guess of the banking system is that it’s always been fairly solid?
Nathan: Yeah, that’s right and that’s why we’ve been backed by some of the smartest money in town with Macquarie, as you said Hostplus and others. So ultimately we have our own backup servicing arrangements with people like Perpetual so there’s the security for the lender for the borrower on that basis.
Kevin: Because I noticed too in your publicity that fees are almost … Well, the fees are nil. There’s no change over fees. There’s no establishment fees. How are you making your money?
Nathan: So you’re absolutely right. So no application, no regular account fees, no exit fees. All we do is pass through the third party cost like evaluation on application. So this is ultimately about delivering great rates and in doing so incredibly efficiently for and therefore passing on the great rates.
Kevin: We’ve seen some tremendous offers come from the banks by the way of honeymoon rates and so on. How do we know that this is not just another one of those?
Nathan: Completely agree with that Kevin. That’s one of the big frustrations for borrowers. So we bring a pricing promise. We’ll never charge existing customers more than we offer new and that’s very different from the experience that customers have with their banks today where they are new customers … sorry existing customers are really subsidising the new. And it’s costing hundreds of millions of dollars. So we see that as an Australian first and really bringing fair pricing into a category that dearly needs it.
Kevin: We’ll certainly a lot of promises there and we wish you well. Anything that’s going to make it more transparent and easy for us to borrow money particularly at a time when it is becoming harder and harder for people to succeed and borrow. Nathan Walsh, thank you so much. Nathan is one of the founders and the CEO for Athena. The website, I imagine is quite simple. It’s just Athena is. Athena.com.au.
Nathan: Yes, that’s right Kevin.
Kevin: A-T-H-E-N-A. Hey Nathan, all the best mate. Thank you very much for spending some time with us today.
Nathan: Wonderful to chat.