Terms of reference
On 4 September 2014, the Senate referred an inquiry into the Scrutiny of
Financial Advice (SOFA) to the Senate Economics References Committee for
inquiry and report by the first sitting day of July 2015. On 2 March 2015, the
Senate granted an extension to the committee to report by 1 February 2016 and
subsequently to 31 August 2016.
The terms of reference are as follows:
Implications of financial advice
reforms, with particular reference to:
- the current level of consumer protections;
the role of, and oversight by, regulatory agencies in preventing the
provision of unethical and misleading financial advice;
whether existing mechanisms are appropriate in any compensation process
relating to unethical or misleading financial advice and instances where these
mechanisms may have failed;
mechanisms, including a centralised register, that would ensure
financial planners found to have breached any law or professional standards in
their employment are transparent, for both the sector and consumers;
how financial services providers and companies have responded to
misconduct in the industry;
other regulatory or legislative reforms that would prevent misconduct;
any related matters.
Inquiry into land banking
On 14 May 2015, the committee resolved that activities associated with
the promotion and sale of land banking and similar property investment schemes
could come under the definition of a financial product and therefore be covered
by the terms of reference for the SOFA inquiry. The committee, therefore,
resolved that it would investigate land banking as part of its broader inquiry
into financial advice. The committee held a public hearing in Melbourne on 30 September 2015
examining the specific matter of land banking and, after considering the
evidence, resolved that it would table a report dealing specifically with this
matter and advice on property investment more broadly. A list of witnesses who
appeared at this hearing is at Appendix 3.
Although the committee did not call formally for submissions on land
banking, it received seven submissions, which are listed separately at Appendix
1. The committee also received responses from the Australian Securities and
Investments Commission (ASIC), the Australian Competition and Consumer
Commission (ACCC) and Slater and Gordon Lawyers to a series of written
questions on notice. An index to the responses is at Appendix 2.
Background to inquiry
'Land banking' is a generic term that is associated with the widespread
practice of buying and holding land in the hope of future capital growth. It is
a well-established practice undertaken by many property developers to ensure a
supply of land stock for future development. Investors with recognised
reputable property development companies, such as the Meriton Group, generally
purchase an off-the-plan development—a house and land package, or an apartment.
Such companies may hold land until it increases in value before proceeding to
the development stage.
Retail investing in land banking activities takes on various forms,
including off-the-plan contracts for sale and the purchase of 'options' schemes.
Options schemes, which are a relatively new phenomena in the land-banking
space, are property investment arrangements that centre on selling 'options' to
retail investors to purchase future land packages for farmland that has not yet
gained residential development approval but is located near regional towns or
on the outskirts of capital cities. Although the committee's interest in land
banking covers both off-the-plan contracts for sales and options, the emergence
of the options schemes in recent years has attracted particular attention from
the media and ASIC.
In September 2013, the Fairfax media began to draw attention to
potential problems with land banking. At that time, one report noted that over
the past eighteen months, the property arm of Mr Jamie McIntyre had been
marketing 'land banking' options on lots in a development on the outskirts of
Bendigo on the Midland Highway, 12 kilometres from the town centre. It stated:
Investors may have paid up to $34 million for 'options' in a
supposedly idyllic rural housing development that is just a paddock, as
Melbourne's recovering property market proves a boon to spruikers.
By early 2015, reports about land banking schemes marketed by two particular
companies, 21st Century Group and Market First, had become more
frequent. The media accounts were based on investigations by the Fairfax media which
revealed that hundreds of Australians had invested in such schemes but there
was no evidence that the land was being rezoned into residential land or being
developed as promised.
Around the same time, committee members became aware of disquiet over land
banking schemes. The land on offer was primarily in Victoria but some
developments were in other states, including Queensland. These growing concerns
prompted this inquiry.
Throughout 2015, the problems associated with land banking schemes continued
to mount as investors became uneasy when property development milestones were missed
and the land remained undeveloped.
Worried investors, seeking to discuss their concerns, or get the money they invested
reimbursed, reportedly had trouble contacting anyone in the companies that
promoted and sold the projects.
Around May 2014, ASIC became aware of problems relating to land
banking schemes when it received two reports—one concerning land options and
the other from a potential investor in a 21st Century scheme.
On 7 August 2015, ASIC announced that it had commenced court proceedings in the
Federal Court of Australia against companies associated with Mr McIntyre
and the 21st Century Group regarding their promotion and sale
of interests in five land banking schemes in Victoria and Queensland. The
proceedings are continuing, and on 3 December 2015 the Federal Court
adjourned and re-listed the directions hearing for 5 February 2016.
On 7 October 2015, the Federal Court made interim orders appointing
provisional liquidators to companies associated with those land banking
These court proceedings are a litmus test for whether ASIC has the regulatory
powers required to regulate certain land banking schemes (or variations of such
schemes) and protect affected investors under the Corporations Act 2001
The court proceedings and recent media reports have continued to shine a
light on land banking schemes and highlighted the importance of the committee's
inquiry. While the committee's interest is in land-banking specifically, it
should be noted that the committee recognises that the land banking schemes it
is concerned with have emerged within the context of an unregulated property investment
advice industry that has long been plagued by questionable practices. In
particular, property 'spruikers' have profited from the provision of advice—or,
as the spruikers would have it, 'education'—on property investment that is often
inappropriate to the circumstances and needs of their clients, and at times
outright misleading. The promotion of land banking schemes is one of the more
recent and concerning manifestations of wider problems in the property
investment advice industry.
As such, while this report is overwhelmingly concerned with matters specific to
land banking, consideration is also given to the need for reforms to better
protect Australians receiving property investment advice generally.
Scope and structure of report
In this report, the committee is interested mainly in: the nature and
extent of harm caused by land banking schemes; the regulatory framework and
consumer protection matters associated with land banking; and the effectiveness
of national, state and territory legislation in addressing concerns about land
banking schemes and property spruiking more generally. The report comprises eight
chapters including this introduction:
Chapter two considers the origins and characteristics of land
banking, including the emergence of a new form involving the purchase of
options; the attractiveness of such schemes to investors; and the risks
associated with this type of investment.
Chapter three examines the major concerns about the operation of
land banking schemes including: the marketing techniques employed; the
transparency of the operation of the schemes; disclosure of risks; use of
disclaimers; investors' understanding of the arrangements they were entering; and
the high-pressure sales tactics used at investment seminars.
Chapter four explores further the marketing techniques of land
banking schemes with a focus on the involvement of well-known companies in the
operation, or provision of advice on, land banking schemes which lent an air of
credibility and legitimacy to the developments.
Chapter five analyses the use of referrals and the involvement of
third parties purporting to provide investors with 'independent advice'.
Chapter six reviews the avenues of redress for retail investors
who feel as though they have received unsound investment advice from unscrupulous
Chapter seven looks at two particular aspects of recent land
banking schemes—whether they were in fact a financial product and the use of
self-managed superannuation funds (SMSF) as a vehicle for investing in the
Chapter eight considers the adequacy of the current regulatory
regime around advice on property investment, whether there is a need for a
national approach to the provision of property investment advice, and, if so,
the form it could take. This chapter also recognises the importance of
financial literacy as a means of consumer protection.
This inquiry into property investment builds on the findings of previous
government and regulator reports, including two comprehensive reports into
property investment advice: the Parliamentary Joint Committee on Corporations
and Financial Services (PJC) report, Property Investment Advice—Safe as
Houses?, released in June 2005 and the Victorian Parliament Law Reform
Committee's report, Inquiry into Property Investment Advisers and Marketeers,
released in April 2008.
The committee took evidence from only a few investors out of the more
than 2,000 people ASIC estimates have invested in land banking schemes over the
last five years.
Although ASIC would not speculate on the reasons it has not received many
complaints, it observed that the schemes are 'such long-term investments,
no-one has got to the point of actually losing out'.
The committee understands that many investors may not yet realise the risky
nature of their investment. An important aspect of this report is to alert
investors to the need to exercise care and diligence with any venture involving
land banking and property investment more generally.
A lack of cooperation from those involved in operating or promoting land
banking schemes has hampered the committee's investigation. Mr McIntyre, who
appeared before the committee at a public hearing and made a submission, is a
notable exception. The committee repeatedly invited a number of people to
appear before the committee but those invitations were either declined or went
unanswered. The committee received no response from: Mr Henry Kaye; Ms Julia Feldman;
Mr Fady Said (an accountant at Market First); Mr Darren Eliau
(principal lawyer at Evans Ellis Lawyers); and Mr David Bracka (from Project
Management (AUST) Pty Ltd). In addition, the following people declined the
committee's invitation to appear before a hearing:
Mr Rowan Burn, CEO of Market First;
Mr Greg Klopper, managing director of Global1 Training Pty Ltd,
who ran the investment seminars used by Market First to spruik their land
Mr Adam Zuchowski, formerly a lawyer at Slater and Gordon
(Mr Zuchowski provided a written submission to the committee);
Mr Michael Grochowski, director of Project Management (AUST) Pty
Ltd and potentially a shadow director of one of the land banking schemes known
as Midland Hwy; and
Mr Sam Herszberg, a property developer who holds interests in a
number of holding companies which own the land offered as part of the schemes.
The committee is disappointed but not surprised by the reluctance of the
promoters and other participants in the land banking schemes to come forward
and explain their role in the schemes. Their lack of cooperation speaks
Despite some of the obstacles faced by the committee in gathering
evidence about land banking schemes, the evidence it did receive is very
troubling. At best, it appears that many unsophisticated investors were
convinced through high-pressure selling techniques to invest in schemes they did
not properly understand and that were inappropriate to their needs and
circumstances. At worst, land banking scheme promotors may have intentionally
misled 'mum-and-dad investors' about the prospects of land banking schemes in
the knowledge they and other people involved in marketing and administering the
schemes would be the ultimate beneficiaries of the money 'invested'. The
committee again emphasises that most of the individuals involved in land
banking schemes declined to cooperate with the inquiry or offer evidence in
support of the schemes.
The committee thanks all those who assisted with the inquiry,
especially the individuals and organisations who appeared before the committee
and those who made written submissions. The committee appreciates that it was
particularly difficult for investors in land banking schemes to tell their
stories and acknowledges that their evidence was crucial to this inquiry.
The committee took the view that it was not its role to address individual
cases involving consumers but rather to examine the overall regulatory scheme
relating to the land banking schemes. However, the committee did take
individual cases into account to the extent that their experience was able to
shed light on what appears to be an emerging problem.
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