... ~ 10• ., : 'k:- L ' l,.t .' , -. ;( I ~~ 0 ~~M~~ ~Iff/ S /:J . ./ r-/ , .' ..~ ...""' "_ 1 ':':;--'-"'.'""1'\ ;)-7 -....J.,.~ /.~ ..'/' \ Government of South Australia - -- - - - - - . NATIONAL COMPETITION POLICY REVIEW of the LANDAGENTSAcr1994 SUPPLEMENTARY REPORT The views expressed in this Supplementary Report are the views of the Review Panel only and do not represent the views of the South Australian Government. Any action taken in anticipation of the outcomes of this Supplementary Report or the review process is solely at the risk of persons taking such action. National Competition Policy Review Land Agents Act 1994 Supplementary Report Supplementary Report prepared by the Review Panel March 2001 Government of South Australia Rcvie\\' Panel Na tio n al C o m pc t ition Policy Review i .aiu! Agl'1lts Act /9 94 GPO Box 2605 Adelaide SA 5001 26 March 2001 The Honourable K Trevor Griffin Minister for Consumer Affairs Parliament House ADELAIDE SA 5000 Dear Minister As announced in your Ministerial Statement to Parliament of 7 November 2000, the Review Panel responsible for the National Competition Policy Review of the Land Agents Act 1994 has reconvened to consider the "legal qualifications" recommendation of its Final Report. The Review Panel is now pleased to present a Supplementary Report on the "legal qualifications" recommendation of the National Competition Policy Review Final Report into the Land Agents Act 1994, representing the unanimous conclusions and recommendation of the Review Panel. This supplementary review has been conducted in accordance with the Terms of Reference set in your letter to the Review Panel dated 1 December 2000 and reflects the research and deliberations of the Review Panel, as well as the evidence, both oral and written, received during the course of this supplementary review process. The Review Panel would like to acknowledge the valuable contributions received from the various individuals and organisations who have assisted our understanding of the many issues we have considered. • .. , ': • .<' .. ~ TIll' [{l'\'iL'\\' Panel lHl[L'S th.it while vou l'()Jllirn1L'd Ms K,lle Trdl1l'\'\' For ease of reference, this recommendation will be referred to as the "legal qualifications" recommendation throughout this Supplementary Report. The qualifications criterion is one of five, set out in section 8(1) of the Act, which a natural person applicant must satisfy in order to be granted registration as a land agent. The complete set of entitlement criteria is as follows:- Entitlement to be registered 8. (1) A natural person is entitled to be registered as all agent if the perso/1(a) bas- (i) the qualifications required by regulation; or (ii) subject to the regulations, the qualifications Commissioner considers appropriate; and that tile (b) has not been convicted of an offence of dishonesty; and (c) is not suspended or disqualified from practising or carrying 0/1 an occupation, trade or business under a law of this State, the Commonwealth, another State or a Territonj of tile Commonwealth; and (d) is not an undischarged bankrupt or subject to a composition or deed or scheme of arrangement with or for the benefit ofcreditors; and (e) has not, during the period of five years preceding the application for registration, been a director of a body corporate wound lip for the benefit of creditors(i) when the body was being so wound up; or (ii) within the period of six months preceding the commencelIle 11 t of the winding up. (Emphasis added) ~ The "qualifications" entitlement criteria is section 8( I )(a) of the Act , National Competition Policy Review Lund Agents Act /9!J4 Supplementorv Repor; Page 9 Therefore, the recommendation of the Review Panel relating to legal qualifications deals only with the restriction on competition contained within section 8(1)(a) of the Act. In identifying section 8(1){a) as constituting a restriction on competition, the Review Panel notes that the requirement to be registered is of itself a significant barrier to entry, but concluded that it is justified in the public interest. Nonetheless, the Competition Principles Agreement requires that even if a restriction is so justified, alternative means of achieving the regulatory objectives must also be examined. b In light of this requirement, the Review Panel examined other occupations to ascertain whether they might appropriately equip a person to carryon a business involving some or all of the skills presently related to land agents with the same low levels of risk to consumers as do land agents. If such occupations could be identified, the Competition Principles Agreement requires that these alternatives to the current regulatory scheme be applied in relation to the entitlement criteria. The two occupational groups examined in detail by the Review Panel, based on submissions received in response to the Issues Paper, were legal practitioners and accountants. In terms of accountants, the Review Panel concluded that, while unarguably competent in matters relating solely to the sale of a business, accountants do not have the same level of competence in relation to dealings in land. As it is rare to have a business sale which does not carry some interest in real property, be it a lease, licence or freehold title, the Review Panel concluded that at this point accounting qualifications are not of themselves an appropriate alternative to the current qualifications required under the Act. The Review Panel did note however the potential for industry bodies and the Office of Consumer and Business Affairs to explore this issue further. 7 As evidenced by the "legal qualifications" recommendation, the Review Panel reached a different conclusion in relation to the appropriateness of legal qualifications. In coming to this recommendation, the Review Panel considered a number of arguments for and against allowing legal practitioners to perform the work of land agents. In doing so, it reached a number of important sub-conclusions and f. 7 Clause 5( I) of the Competition Principles Agreement For the discussion of accounting qualifications see pages 30-32 of the National Competition Policy Final Report into the Land Agents Act /994 . National Competition Policy RC'l'lC'w Lane! Agents A ct /1)1)4 Pa ge 10 Supplem enror v R cpo rt it is convenient to briefly consider these at the outset. The Review Panel notes that discussion on the adequacy or otherwise of legal qualifications docs not fall within this category, as this issue forms the basis of this Su pplernentary Report, and will be considered in detail subsequently. 2.1.1 Susiematic selling of real estate 1I0t part o{lega I practise A land agent is defined for the purposes of the Act as a person who carries on a business that consists of or involves selling or purchasing or otherwise dealing with land or businesses on behalf of others, or conducting negotiations for that purpose or selling land or businesses on his or her own behalf, or conducting negotiations for that purpose. 8 However, the Act also allows that legal practitioners may in specific and limited circumstances carry out the activities of a land agent, which would otherwise require them to be registered, without being registered. 9 In its submission to the Issues Paper, the Law Society of South Australia acknowledged that whilst legal practitioners engage in a number of activities relating to land, including the preparation of contracts and leases and the negotiation of the private sales on behalf of vendor clients approaching them for that purpose, they do not:• • • • • • advise on sale prices; conduct auctions; employ sales persons; attend to open inspections; advertise properties for sale; or advertise for listings. In effect, this submission acknowledged the limits of "land agent" work open to legal practitioners under the terms of the exemption. 8 q Sections 4( I)(a)&(b) Section 4(2)(a) National Competition Pol icy Review Lutul Ag enrs A ('I /994 :S fJ l ern enturv Rcport '/Ifl Page II Later however, in its submission to the Draft Report, the Law Society argued that solicitors should not be required to be registered under the Act to carryon any of the activities of a land agent, as they had not been required to do so in the past. The Review Panel did not accept this submission on the basis that it did not agree that solicitors had not been required to gain registration in the past. Rather, the Review Panel concluded, as contended in the Law Society's earlier submission, it is simply the case that solicitors had not performed such work. It was therefore concluded that the systematic selling of real estate not occurring in connection with a legal practitioner's practice does not form part of "legal work" and therefore that legal practitioners are presently restricted from participating in this market by reason of the Act's provisions. The Review Panel has again considered this matter for the purposes of this review and has corne to the same conclusion; the systematic sale of real estate does not fall within the ambit of legal practise. 2.1.2 One Act approach It is also important to note the conclusion reached by the Review Panel that although legal qualifications were considered to provide appropriate levels of consumer protection, it is nonetheless crucial that everyone who carries on business such that they fall within the definition of a land agent should be registered under the Land Agents Act 1994. While it was accepted that legal practitioners are subject themselves to a regulatory regime aimed at providing consumer protection, the means by which that outcome is achieved are different from those of the Act. Requirements placed on legal practitioners, such as trust accounting and disciplinary proceedings, are in form common to the two regulatory schemes, but have different regulatory aims. In the case of the Land Agents Act 1994, the regulatory regime achieves its aims by regulating the conduct of those involved with the sale of land and/ or a business. In the case of the Legal Practitioners Act 1981, it is the regulation of the conduct of those practising the law which achieves the aims of the legislation. If one sector of the real estate market were regulated under one scheme, while another sector providing the same services were to be regulated under a different scheme, there is a real prospect of market failure arising. By way of example, there is a Legal Practitioner's Guarantee Fund in place to compensate consumers Page 12 National Competition Policy Rc'\'/('II' Land Agel/Is A("I 1994 Supplementary Report who suffer loss by reason of the fiduciary default of a lcga! practitioner, which IS similar in operation to the Agents Indemnity Fund. However, then' arc SOI11l' significant differences between these two funds and there could be no guarantl'l' that the Legal Practitioner's Guarantee Fund would cover activities that are lru ly within the realm of a land agent's work. In light of the difficulties which would arise from having services providers within the one market regulated under a number of statutory schemes, with the potential for different standards being applied amongst them, the Review Panel concluded that it is more sensible that all who provide the same services to consumers should be regulated under the same scheme. In this case that means that anyone falling within the definition of a land agent by reason of his or her activities should be regulated under the Land Agel/ts Act 1994. 2.2 Tile Submissions oUlle Real Estate Institute of Sou til Australia The Review Panel notes at the outset that the Real Estate Institute was specifically consulted throughout the earlier review process. This consultation consisted of an invitation to an information session in early 1999 on the National Competition Policy Review process conducted by the Office of Consumer and Business Affairs in conjunction with the Department of Premier and Cabinet, and targeted consultation on the Issues Paper and Draft Report. However, since the time that the Final Report was provided to the Government, the Real Estate Institute has raised concerns over the "legal qualifications" recommendation and has outlined those concerns in two supplementary submissions to the Minister for Consumer Affairs. The Minister for Consumer Affairs has forwarded these submissions to the Review Panel as material to be taken into consideration during its deliberations on the issues of the "legal qualifications" recommendation. The Review Panel notes that these submissions have been used in its deliberations merely to identify general areas of concern with the recommendation. The Review Panel has not been asked by the Minister for Consumer Affairs to address issues raised by the Real Estate Institute which do not relate to the "legal qualifications" recommendation. Further, the Review Panel does not consider it appropriate to attempt to do so, as many of the topics raised are beyond the scope of not only this reconsideration of the "legal qualifications" recommendation, but also the Terms of Reference for the review, which were set in accordance with the Competition Principles Agreement. National Competition Policy Review Land Agents A ct 1994 Supplenientarv Report Page 13 Therefore the following discussion of the " lega l qualifications" recommendation, while initiated by the concerns expressed by the Real Estate Institute, represents the deliberations of the Review Panel on this issue. The conclusions reached and the recommendation made arc therefore the result of the research conducted by the Review Panel and the evidence it has received in the course of its deliberations. Pa ge 14 NatiOIlC/1 Competition Policy Review l.an d Agents Act l vv-t Supp 1r.>1I/(!Il tnry Repor; PART 3: ARE LEGAL QUALIFICATIONS APPROPRIATE FOR REGISTRATION PURPOSES? 3.1 QUALIFICATIONS REQUIRED fOR REGISTRATION AS A LAND AGENT s discussed at Part 2, section 8(1) of the Act contains five separate entitlement criteria which every natural person applicant for registration must satisfy before the Commissioner for Consumer Affairs may grant a registration. Section 8(1)(a) provides that an applicant must possess certain qualifications:- A Entitlement to be registered 8. (1) A natural person is entitled to be registered as an agent if the persClIl(a) has- 0> the qualifications required by regulation; or (ii) subject to the regulations, the qualifications Commissioner considers appropriate; and that the (b) has not been convicted of an offence of dishonesty; and (c) is Hot suspended or disqualified from practising or carrying Oil an occupation, trade or business under a laui of this State, the Commonwealth, another State or a Territory of the Commonwealth; and (d) is not an undischarged bankrupt or subject to a composition or deed or scheme of arrangement with or for the benefit of creditors; and (e) has not, during the period of five years preceding the application for registration, been a director of a body corporate wound up for the benefit of creditors(i) wizen tile body was being so wound up; or (ii) within the period of six months preceding the commencement of the winding up. In line with earlier comments made by the Review Panel, it should be noted that the scope of this Supplementary Report is limited to a consideration of section 8(1)(a), the qualifications criterion, and does not extend to other entitlement criteria listed in section 8(1). The Land Agents Regulations 1996 set out the qualifications which are currently prescribed for the purposes of section 8(1)(a)(i):. Nunona] Competition Policv Review Lane! Agents Aci I YY.f Suppletn entary Report Page 15 Ellt i tlenien t to be registered as £Igell t-qua lifica tions 5. For tltc !JIlrpvst!s of section 8(1) (a) of tile Act, to be elltitled to be registered as all agent a l/IltUl'II1 person must "old tit least onl' of the following qualifiratlOl1s: (II) .Certijicut« in Real Estate Agellcy conjerred by flit! Department for Employment, Training and Further Education; (b) degree of Bachelor of Business (Propertl) conferred by the Uni'llersity of South Australia, including satisfactory completion of (or status granted in) the following slIlljects: (i) Commercial Properb] Management; and (ii) Real Estate Business and Marketing Management; (c) Graduate Diploma ill Property, or Master of Business in Property, conferred by tile Uni'versitl) of Souili Australia including satisfactory completion of (or status granted in) the following subiects: (i) - (A) Property Law 1G and 2G; or (B) Propertv Law 2M; and (ii) (A) Real Estate Valuation 1 and Properh) Case Studies; or (B) Real Estate Valuation G; and (iii) (A) Real Estate Business Management and Real Estate Case Studies; or (B) Real Estate Business and Marketing Management G; (d) degree of Bachelor of Business in Propertl) conferred by the Uniuersitsj of Souili Australia, including satisfacton) completion of (or status granted in) the following subjects: (i) Properb] Management; and (ii) Real Estate Field Work 1 and 2; and (iii) Propertu Marketing; (e) degree of Bachelor of Business in Propertv conferred by the Uniuersitq of South A ustralia, togetlter with satisfacton) completion of ( or status gran ted in) the following subjects offered by the Department for Entploinnen t, Training and Further Education as part of the course for the Certificate in Real Estate Agency: (i) Practice II; and (ii) Practice III. National Compeu u on Policy Review Land Agents If ct 1994 Pa ge 16 SlIpph'/Ilf!/IICl1Y Report In order to put these various qualification requirements into context it is necessary to go back to first principles and consider what it is that a land agent does. 3.1.1 What is a "laud essus: and what do thell do? Section 4 defines the term "land agent" for the purposes of the Act:- Meaning of agent (1) A person is an agent for the purposes of this Act if the persall cernes business that consists of or involves- 011 (l (a) selling or purchasing or otherwise dealing with land or businesses on behalfofothers, or conducting negotiationsfor that purpose; or (b) selling land or businesses on Iris or her own behalf, or conducting negotiationsfor that purpose. (2) However, a person does not act as an agent in so far as(a) the person sells or purchases or otherwise deals with land or businesses all behalf of others, or conducts negotiations for that purpose, in the course of practise as a legal practitioner; or (b) the person sells land or businesses, or conducts negotiations for thai purpose, through tile instrumenlalitsj ofalt agent; or (c) the person engages in mortgage financing. Within this definition there are some terms which are further defined.!? Of particular note for the purposes of this Supplementary Report is that the terms "land"I "dealing with land" and"sell" greatly expand the definition of a land agent. "land" includes- (a) an interest in land; and 10 See section 3 ofthc Act National Competition Policy Review Lund Agents Act /994 Supplemeuturv Report Page 17 (lJ) 1111 exclusive right (whether deriuing from the ownership ofa share or interest in n body corporate or partnership or arising in some other way) to ilu: separate occupation of laud or II building or part of a building; "dealing with laud" illrill des granting or inking a lease or tenanci} agreement ozIer lal/d "sell" includes auction and exchange, mid JI purchase" has a corresponding mean IIIg. 3.1.2 TIre legal significaHce of the definition The legal significance of the expanded definition is that the work of a land agent is extended from merely negotiating or arranging for transfers of ownership of land to include negotiations or arrangements involving "lesser" interests in land, such as exclusive possession, or leases, and licences to occupy. The practical significance is that those who arrange weekly (or other periodic) accommodation at holiday beach houses are caught by the definition of a land agent as are those who sell or lease valuable major commercial or industrial properties. All of these people are required to be registered under the Act. Having considered the scope of a land agent's work as defined by the Act, the Review Panel notes that it is the level of qualifications required to adequately perform this scope of work which is under consideration in this review. While it may be true that some see a land agent's role as in some way greater, or more expanded, than that specified by the Act, and indeed may themselves take on extra activities in the market, such activities do not attract the regulatory controls of this Act. It needs to be remembered that regulatory control aims only to ensure that those who wish to participate in the market have the basic skills necessary to do so without presenting risk to the consumer. The Act sets out the areas which Parliament has determined are the basic skill set a land agent must have. This skill set is necessarily founded on the notion of what a land agent does, which is itself set by the definition discussed above, and also includes matters expressly dealt with in the Act such as trust accounting and proper treatment of trust monies. The Review Pane] does recognise that there are skills which market particip~nts develop over time, and which can, over time, become perceived as being "best National Competition POIUT Rvvtcv. Laud Agvnt: Aer I!)!).J Page 18 Supplementurv Report practise" for that industry. Such skills include proVISIOn on advice on real property project management, as well as specialist skills in rural or commercial property matters. However, these industry "best practise" or "specialist" skills are often far removed from base level consumer protection area, and it is the latter which are regulated by the Act. It must be remembered that the purpose of regulation of any sector of a market is not to ensure business efficiency or success for individuals, nor it is to protect the public from all possible risk; regulation which sought to achieve these ends. would impose unreasonable costs and burdens on both market participants and consumers. It follows that although matters such as general financial advising on real property projects may fall within the ambit of an established land agent's practise, such work is not per se the work of a land agent for the purposes of the Act. It is true that this type of work may be a natural consequence of participation within the market, but it is another matter entirely to require a new entrant to the market to display these skills. New entrants to the markets arc simply required to display the skills which Parliament has deemed necessary for any person wishing to act as a land agent. Ultimately then, when considering which types of qualification are appropriate for satisfaction of section 8(1) it is necessary to at all times have regard to the functions of a land agent as defined by the Act. 3.2 EFFECT OF CURRENT QUALIFICAnONS REQUIREMENTS ON COMPETITION In the Final Report, the Review Panel identified the existence of any pre-requisite to entry into the market as a barrier to entry. While the concept of barriers to entry was dealt with in that report, it is convenient that the Review Panel revisit this topic for the purposes of this Supplementary Report. In order to do so appropriately, it is also necessary for the Review Panel to revisit the concept of the relevant market for the purposes of the Act. "Market" is a term which is often used when discussing economic matters, both in a general sense describing the extent of competition, and in a more specific sense describing the physical location of a market. For the purposes of this review, the Review Panel is more concerned with the former, as the latter is by and large governed by the constitutional limitations on the powers of the South Australian Parliament.t! 11 The Review Panel docs however note the operation of the Mutual Recognition (South Australia) Art /993 . National Competition Policy Review Lund Agents Act /994 S upplvtnent ury Report Page 19 The 1110re general sense of market was perhaps best defined by the Trade Practices Tribunal in Re Qlleellslrl11d Ca-operatioe Milliug /vseociation Ltd and [kJillllCi' Holdiug Ud:"1\ niarke1 is the area of close compe tttion betioeen firms or, I'll fling it a little dlffereutly, tile field of rinaln] between them. (1f there is 110 close competition there is of course a monopolistic market). Witllin tile bounds of tile market there is substitution - substitution between aile product and another, and between one source of supply and anatiler, ill response to changing prices. So a market is the field of actual and potential transactions bettueen buyers and sellers amongst toltotn there can be strong substitution, at least in the long run, if given a sufficient price incentiue,")? So what then is the field of actual and potential transactions between buyers and sellers in terms of the Land Agents Act 1994? Perhaps the best way to address this question is to consider what the "bounds of the market" are under the Act. In adopting this approach, the Review Panel is able to define the outer limits of the market, which in turn allows it to use the scope of a land agents work, as defined by the Act, to establish the market for the purposes of this review. Quite simply then, the "bounds of the market" as set by the Act are consonant with the definition of a land agent as set out in section 4, bearing in mind the expansion of the definition by the further definition of the terms "land", " dealing in land" and" sell". However it is important to note that it is not the conduct of those within this market vis a vis each other that is the concern of this review; such matters are dealt with by the provisions of Part IV of the Trade Practices Act 1974 and the Competition Policy Reform (South Australia) Act 1996 (the "Competition Code"). Put simply, the focus of a National Competition Policy Review in terms of the market is whether the relevant Act:• • Sets the boundaries of a market too narrowly; and/ or Creates barriers to entry to that market which are too high; and/ or I~ Rc Queensland Co-operouve Millillg Association Ltd and Defiance Holding LId (1976) 8 ALR 481 5 17; ATPR 40-012 at 17.247. at Pa ge 20 National Competition Policy Review Land Agents A ct 1994 Supplementarv Report • Imposes conduct restrictions on market incumbents which restriction competition. Of course, the overriding test in each case is not simply whether there is a negative economic outcome arising from the restriction, but rather whether the restriction is jus tified in the public interest. If it can be demonstra ted tha t the retention of the restriction is founded on a demonstrated public interest which itself falls within a range of outcomes that could be reasonably reached based on the information available, then the restriction may be maintained. Therefore, the relevant market for the purposes of the Supplementary Review is, as was the case in the Final Report, the market for the provision of services other than conveyancing relating to the sale of land and businesses in South Australia. The Review Panel would now turn to a discussion of barriers to entry, which is effectively the sale focus of this Supplementary Review. A barrier to entry is, in essence, anything impeding, howsoever, the entry of new competitors to a market. The requirement for any registration is itself a considerable barrier to entry. A more complete description of barriers to entry is that they are factors preventing or deterring the entry of new competitors into a market even when incumbents within that market are earning excess profits, and provides that barriers may fall within one of two broad classes; structural (or innocent) and strategic. Structural barriers to entry arise from basic market characteristics such as technology, costs and demand. The widest definition suggests that these barriers to entry arise from factors such as product differentiation, the absolute cost advantages enjoyed by market incumbents and economies of scale. • Product differentiation creates advantages for incumbents because entrants are required overcome the accumulated brand loyalty of existing products as part of the market entry process if they are to take any profits from the market. Absolute cost advantages imply that a new entrant to the market will be faced with higher unit costs at every rate of output. This is generally attributable to matters such as inferior technology and knowledge of practical application of production processes in the market. • National Competition Policy Review Lund Agents Act 1994 Su] Jtll('11/ell tury Report ---"------'--------------- - -- - _............::....=..;:: ~-=---- Page 21 • Scale economies will also restrict the number of suppliers who are able to operate at minimum costs in a market of given size. A narrower definition of structural barriers suggests that barriers to entry arise only when entrants must incur costs not borne by incumbents, and excludes scale economies as a barrier. The importance of sunk costs as a barrier to entry may also be emphasized. Since it is entrants who must incur these costs, which have already been borne by incumbents, a barrier to entry is created. In addition, sunk costs reduce the ability to exit and thus impose extra risks on potential entrants. Strategic barriers to entry arise from the behaviours of incumbents within a given market. In particular, incumbents may act to heighten structural barriers or threaten to retaliate against entrants if they do enter. Therefore, in terms of the Act, the various preconditions, or entitlement criteria, which must be satisfied prior to the grant of registration, are barriers to entry. It necessarily follows that the prescription of specific qualifications is also a barrier to entry. The conclusion reached by the Review Panel in the Final Report was that the requirement that those wishing to become registered land agents should hold qualifications is a justified restriction on competition. Underpinning this conclusion is the undeniable fact that those who act as agents on behalf of consumers in transactions which are, in many cases, the most significant transaction which those consumers will enter during their lives, should be required to complete some level of training. Having reached this conclusion however, it is clear that there is a further restriction on competition underlying this requirement. While the fundamental requirement to hold qualifications is justified, the issues of which qualifications are appropriate needs to be further explored. The limitations on the qualifications acceptable for registration purposes have an effect on competition in so far as other qualifications, which might be appropriate but are not listed in the regulations, do not lead to registration. What the Review Panel is required to test is whether there are alternatives which achieve the same outcomes in a less restrictive manner. If other qualifications exist which address market and provider failure issues in the market in the same way as the currently prescribed qualifications, then it National Competition Policy Review Land Agents If ('1 I C)l)4 Pa ge 22 S up p le m el/ta l"\" R ('!,o rl follows that precluding those with such other qualifications is restricting supply . Fundamental economic theory predicts that where supply is limited within a market there will be upwards pricing pressures. Further, the theory of contestability predicts that with little or no threat of new competitors in the market, the impetus for incumbents to explore service efficiencies and innovation is reduced. Of course, the Review Panel recognises that it is not sufficient that market and provider failure issues be addressed; the costs and benefits of those alternatives to the community as a whole must also be taken into consideration. The Review Panel has identified that the current restrictions on qualifications leading to registration as a land agent are an intermediate restriction on competition. 3.3 ANALYSIS OF CURRENT RESTRICTION When tracing through the current prescribed courses set out in regulation 5, it becomes clear that there are three distinct streams by which a person can satisfy the qualifications requirement; by attaining a certificate, a degree or a graduate diploma/masters course. While the general na ture of these three qualifica tions are, in the Review Panel's opinion, widely understood, their particular place within the current Australian educational system are perhaps not so well appreciated. A scheme known as the Australian Qualifications Framework was established on 1 January 1995 by agreement between Territory, State and Commonwealth governments. In essence, the Australian Qualifications Framework is a twelve level system of national qualifications involving schools, vocational education and training providers and the higher education sector as described in the following table:- 13 D A ustralian Qualifications Framework, ww\\" .ng r.cum. a u. accessed 16/0 I/O I National Competition Policy Review Land Agents Act 191)4 S up p lcm enrarv Report Page 23 Australian (Jwlli[icntiOIlS Framework Oven/iew Schools Sector Vocational Education and T'raini ng Sector Higher Education Sector Doctoral Degree Masters Degree Graduate Diploma Graduate Certificate Bachelor Degree Advanced Diploma Diploma Advanced Diploma Diploma Certificate IV Certificate III Senior Secondary Certificate II Certificate of Education Certificate I As is apparent from the structure of the table, the nature of a qualification becomes more complex the higher it is in the framework. Thus a degree course is more complex than a diploma course, which is in turn more complex than the certificate courses. The Review Panel does not make this point to denigrate in any way any of the qualifications within the framework, but simply to note that there are very real differences in complexity and focus between various qualifica tions. Therefore, while it has been identified that there are three streams of qualification leading to registration as a land agent, a certificate, a degree and a graduate diploma/masters qualification, it must be recognised that those undertaking the various courses undergo very different methods of education and emerge with very different skill sets. The important point to appreciate is that despite these differences it has been determined that each of these qualifications provides, in its own manner, a person with a skill set which properly equips them to carryon the business of a land agent successfully. As an aside, the Review Panel notes that while the regulations list a certificate course in real estate sales as a method of satisfying section 8(1)(a), this course is no longer offered by TAFE. The certificate course presently offered, certificate IV in Business (Real Estate Sales) simply allows a graduate to work as a sales representative. The course which is now offered by TAFE as entry level for registration purposes is a diploma level course entitled Diploma in Business (Real Estate Management). The Review Panel understands that since this course in not prescribed by regulation, the Commissioner for Consumer Affairs has National COIllPl!I;I;OIl Page 24 Polin' Review Land Agents A ct /994 Supplementurv Report exercised his discretionary powers under section 8( 1)(a)(ii) to accept this qualification as an appropriate alternative to those set out in the regul<1tions for registration purposes. The Review Panel also notes that this course is also provided by the RCtlI Estate Institute of South Australia.!! and its course has also been accepted by the Commissioner for Consumer Affairs through an exercise of the appropriate alternative qualification discretionary power in section 8(1)(a)(ii) . Notwithstanding these matters however, the conclusion drawn by the Review Panel in respect of the differing ways in which a person can satisfy the qualifications criterion is that whilst land agents are required to display certain skills, these skills can be derived from widely varying sources and in widely varying ways. Both the gaining of specific competency through a vocational education course and the attainment of a more intellectual body of knowledge which can be applied to specific situations gained through completion of a degree course equally equip a person to be a land agent. Therefore, while a person undertaking a TAFE diploma course may receive competency based training in Real Estate Law for South Australia, and another person undertaking the University of South Australia's Bachelor of Business (Property) undertakes a more general course in the Law of Property, both are considered equally able to deal with property law issues in the course of acting as a land agent. In adopting such an approach, the Review Panel has noted the reasoning of the Commercial Tribunal in the matter of an Application to Vary Common Rule brought by the (then) Land Brokers Society Incorporated in 1989. Whilst this matter concerned the educational qualifications applicable to conveyancers (then known as land brokers), the reasoning followed by the Tribunal in its decision not to delete the TAFE course in favour of sale reliance on a degree course is useful in the context of this review. Having noted that regard must always be had to the scope of work authorised by a licence when considering which qualifications should be considered acceptable for registration purposes, the Tribunal went on to say that:"We believe that as long as any course provides appropriate training and instruction in relation to the activities of a land broker as enuisaged by the Act, I~ Real Estate Magazine, Volume 2 Issue I February 200 I, page 30. Nutional Competition Policy Review Lund Agents Act 1994 Supplementury Report Pa ge 25 together toiil: the tlllckgrolllld and ancillan] matters iluu we haue mentioned, then tliu! course s/lClrtld he regarded as acceJ1tahle."15 3.4 LEGAL QUALIFICATIONS ALTERNATIVE In terms of its reconsideration of the original "legal qualifications' recommendation, the Review Panel notes that it will have to assess the skill set provided by such qualifications against the work performed by a land agent. While it is possible to do this in isolation, the Review Panel has come to the conclusion that a useful tool in this analysis is a comparison of legal qualifications with other qualifications leading to registration as a land agent. Any comparison of qualifications in the current Australian context needs to take into consideration the nature of the Australian Qualifications Framework. As noted above, the various levels of qualification are very different, and the only sensible comparison which can be drawn is between "like" qualifications. In the case of legal qualifications, which are degree courses offered by Universities, the like qualification is the degree course, Bachelor of Business (Property) conferred by the University of South Australia. While there are obviously other qualifications which also allow a person to satisfy the qualification criteria, these qualifications are at a lower level in the Australian Qualifications Framework. While the Review Panel acknowledges the adequacy of these other qualifications, it notes that the focus of the various types of qualification is very different. The certificate in real estate sales provided by T AFE, as listed in regulation 5(a), is a certificate IV within the Australian Qualifications Framework. Within that scheme, certificate courses are aimed at preparing people for employment, and are intended to replace the former category of trade certificates. It has been noted that certificate IV courses> • recognise skills and knowledge that meet nationally endorsed industry/ enterprise competency standards as agreed for those qualifications by the relevant industry, enterprise, community or professional group; include preparatory access and participation skills and knowledge such as: • I~ Application to Vary Common Rule, CD 16/88, Reasons for Decision at page 8. National Competition Policv R el 'n'lI' Land Agents A ct I C)l)4 Page 26 SII/ JP!C /I/ C / lf(/ IT ' Rc/ /o l"/ o o o o o literacy and numeracy; communication skills; working in teams; workplace technology; and industry specific competencies, of increasing complexity and personal accountability at each level of the Certificate qualification; and • may be gained through a wide range of pathways, including: New Apprenticeships (including traineeships); work-based and1or school/ institution-based training; and recognition of prior learning (which may include training programs or an accumulation of short courses). While a diploma course is not listed in the regulations as a prescribed qualification, it is nonetheless useful to note the focus of such courses within the Australian Qualifications Framework. Diploma and advanced diploma courses are aimed at preparing candidates for self-directed application of skills and knowledge based on fundamental principles and/or complex techniques. These qualifications are intended to recognise capacity for initiative and judgment across a broad range of technical and/or management functions . Diploma and advanced diploma courses involver• the sell-directed application of knowledge and skills, with substantial depth in some areas where judgment is required in planning and selecting appropriate equipment, services and techniques for self and others; breadth, depth and complexity covering planning and initiation of alternative approaches to skills or knowledge applications across a broad range of technical and/or management requirements, evaluation and co-ordination; and participation in development of strategic initiatives, as well as personal responsibility and autonomy 111 performing complex technical operations or organising others, • • In contrast, the Bachelor of Business (Property) conferred by the University of South Australia, as listed in regulation 5(b), is a degree course within the Australian Qualifications Framework. Degree courses are the basic qualification for entry into a profession, although the Review Panel notes that some professions, including law, require additional postgraduate qualifications as a NClIIOIIC/1 Competition Policy RCI-iclI' Page 27 Land Agents A('I 1994 .~ 1I1)!.!..-~(,1II l'J If(/lT Reporr condition precedent to entry . It has been noted that degree courses are aimed at the recognition of knowledge and skills related to an academic discipline and prov id er• the acqUISItIOn and critical application of a systematic and coherent body of knowledge; underlying principles and concepts applicable to that body of knowledge; and the associated problem-solving techniques, including independent enquiry applicable to a body of knowledge. • • The Review Panel notes that unlike certificate courses and diploma, a degree course is typically gained through a minimum of the equivalent of three years full time study. Therefore, when considering the adequacy or otherwise of legal qualifications, the Review Panel considers that it must start from a point of comparison; namely the skills and abilities provided by a degree in law must be compared with those provided by the Bachelor of Business (Property). For these reasons it is not possible to make an appropriate comparison between courses falling within different ranges on the Australian Qualifications Framework such as a comparison between a certificate IV and a degree course. In undertaking this exercise, it became clear to the Review Panel that it required some detailed evidence in respect of the courses to be compared. At the same time, while it did not consider it necessary or appropriate to compare degree courses with other lower courses, it was determined that it would be useful to take some evidence from a training provider authorised to confer the certificate IV or diploma course. Therefore, the Review Panel took evidence from:• Mr Rob Kooymans, Program Director - Property Programs Client Relationship Manager - Singapore Property Marketing Program Lecturer in Corporate Real Estate Property Group, School of International Business Division of Business & Enterprise University of South Australia Page 28 National Competition Poltcv Review Land Agents Act 1994 Suppl('11/ ('II t(//'1' Rcport • Mr John Turner Educa tiona l Mana ger Business Services Douglas Mawson Institute of TAFE Associat e Professor Tony Moore Dean Faculty of Law Flinders University • The Review Panel also received ev idence from the Real Estate Institute of South Australia and the Law Soci ety of South Australia in respect of the "legal qualifica tions" recommend a tion. • Mr Barrie Magain President Real Estate Institute of South Australia Mr Martin Keith President Law Society of South Australia • 3.4 COMPARISON OF BACHELOR OF LAWS AND BACHELOR OF BUSINESS (PROPERTY) As discussed in the Final Report, the Review Panel considers that there is overwhelming evidence that the various core elements of a degree in law provide a person with the necessary skills and ability to address the contract, real property, fair trading and commercial law components of the work undertaken by land agents. This position was supported by all parties during the course of the review process during 1999, including the Real Estate Institute of South Australia who submitted that:- "REISA maintains that legal practitioners do 110t haoe the appropriate credentials to appraise and market property for sale. Aside from tlzis issue, REISA believes that legal practitioners' qualifications would othenuise provide adequate consu mer protection. Notional Competition Policy Review Lund Agents Act /994 Supplementury Report Page 29 U II less the issues of credeu tials for appraisal aitd marketing of a propert1) can be i'roJ1L'riy addressed, REISA cannot agree the qualifications held by legal qunlificnfionS [sic - presumably practitioners] are sufficient for registration as all IIgelll."10 Further, all of those providing evidence to the Review Panel during the course of this Supplementary Review expressed the opinion that legal qualifications are undoubtedly sufficient for the legal aspects of land agency practise. The question which therefore arises is what, apart from the purely legal aspects, is the skill set required to as a land agent in terms of the Act. As recognised in the Final Report, the Review Panel understands that a national training package for real estate is in the process of finalisation. At the time of writing however, the Review Panel has received no confirmation of the content of this package and further has received no indication of the elements of the package which the registration authority, the Commissioner for Consumer Affairs, has or will be accepting as the "core" competencies for registration purposes. When considering the content of a degree in laws, and it should be noted that the Review Panel understands that the content of all law degree courses is very similar in South Australia, it was decided that the course offered by the Flinders University would be used as a benchmark. As a part of the course, students are required to study as compulsory subjects the following components considered by the Review Panel to be relevant to the practise of real estate:• • • • • • • • • • Principles of Tort Law; Contract; Lawyering: Procedures and Ethics; Property Law Concepts; Advanced Contract; Issues in Torts; Real Property Law; Corporate Law; Trusts and Assignments; Resolving Civil Disputes (Negotiation); I" R EISA submission 10 the Draft Report of the National Competition Policy Review of the Land Agents AI"l 1994. pages 1-2. Pa ge 30 National Competiuon POIU:l' Review , Land Agents Ac( 1994 Supplemcntury Report • • • • • Property Practise; Succession and Estates Planning Legal Practice Management; Commercial and Corporate' Practise; and Legal Skills and Ethics. The Review Panel notes that there are a number of other elective subjects which students may take as part of their degree which provide skills in the area of real estate, however as these are options, and thus not compulsory for all students, such courses were not considered for the purposes of this Supplementary Report. While it is not appropriate to enter into a lengthy consideration of the content of each of these components in this Supplementary Report, it should be noted that the Review Panel has considered these components in detail and has also received considerable evidence from Associate Professor Anthony Moore with regard to their content. In the case of the Bachelor of Business (Property) it is not necessary to draw any similar distinction between real estate and non real estate components. Therefore, the following list comprises all of the compulsory subjects taught in tha t course:- • • • • • • ~ • • • • • • • • • • • • Physical Aspects of Real Estate; Accounting, Decisions and Accountability; Economic Environment; Business Information Systems; Introduction to Law Marketing Principles: Trading and Exchange; Statistical Analysis in Business; Urban Economics 1 EF; Forecasting and Business Analysis; Law of Property Finance and Investment; Real Estate Management and Agency Practise; Real Estate Valuation; Real Estate Documentation; Work and Organisation; Communication and the Media; Real Estate Market Research; Portfolio and Fund Management. National Competition Policy Review Land Agel/Is Act 1994 -)-1/fJjJI('liIe" tillY R('!JOri Page 31 While the above list of subjects required in a law degree does not equate directly to the subjects offered in the Bachelor of Business (Property), nonetheless when L1w cou rse content of each subject was analysed by the Review Panel, it was noted that there are many areas in which there is an overlap of skills gained. By way of example, both courses deal with aspects of property law and, notwithstanding the more detailed legal knowledge provided by a law degree, both would appear to provide a person with sufficient skills in the legal aspects of property transactions. Similarly, both degrees provide students with skills in areas such as negotiation, albeit through courses with entirely differing focus. However, the underlying skill of negotiation is not one necessarily specific to any given field of endeavour, and the Review Panel considers that this skill would be readily transportable between the legal and real estate markets. While recognising that there is a high degree of consonance between the two degree courses, there are nonetheless certain skills which are covered in the Bachelor of Business (Property), but not covered completely or adequately by a degree in law. Similarly, the Review Panel also notes that there are some skills intuitively crucial to the work of a land agent which are only partially covered the Bachelor of Business (Property). However, as the Review Panel is comparing degree courses rather than vocational education courses, there will always be some areas where a degree course will not appear to immediately address a skill, but will, in practise, provide a person with appropriate problem solving techniques to deal with any difficulties which may arise. What is more important for the purposes of this review is to identify the areas of discordance between the two degrees, rather than directly comparing the law degree against a set of competencies. The Review Panel has concluded that there are four discreet areas in which the Bachelor of Business (Property) provides a graduate with competence over and above that provided to a law degree graduate. The areas of difference between the two degree courses are:• • • ensure efficient and accurate trust account management; appraisal; provide property management services; and Page 32 National Competition Policv Reviel\' Land Agrnt» Act 19')4 Suppletn cnt arv Report • undertake property sale by private treaty and conduct propcrtv s!" Topic 1 • • • • • • • • • • • Land Registration system - an overview; Jessup LTG Practise; LTO Bulletins; Property Assist; Community Titles; Community Titles - by-laws; Different forms of home ownership; Mortgages; Mortgage preparation; Caveats; Supreme Court practise direction on removal of caveats. Topic 2 • • • Contracts; Precedent nomina tion forms; Contracts for the sale and purchase of land o Law Society o Institute of Conveyancers o Real Estate Institute o Society of Auctioneers Land and Business (Sale and Conveyancing) Act 1994 - provisions re Form 1 and cooling-off rights; Form 1 (Land and Business (Sale and Conveyancing) 1995)); Form 3 - certificate of independent advice; Conveyancers Act s17 - authority to act for two parties; Conveyancers regulations - Form 4; Stamp duty rates; First home buyer information; Commonwealth government grant information; • • • • • • • • tq Source: Materials provided to the Review Panel by the Law Society of South Australia. National Competition Policy Rn'/C'II' Laud Agents Act 199 4 Page 36 SlIppleIlH'1I{ar.I' Rep ol'/ • • • • • • LTO registration rates; Water information; Acting for vendor; Acting for purchaser; Simple conveyancing matters; Complex settlement statements: Topic 3 • • • • • Provisions of residential tenancies legislation: terms of tenancy and notice periods; Leases; Commercial leases; Anatomy of a commercial lease; Provisions of commercial tenancies legislation. Topic 4 • • GST Implications; Tax Implications. It can be seen from this list that the range of topics covered is very broad, and that aside from the contractual land agent issues the course also covers iss ups such as preparation of leases and conveyancing instruments. considered the material available to it and all the evidence it has received, the Review Panel has concluded that those who have completed law degrees and are admitted, or are entitled to be admitted, to practise as a lcga I practitioner in this State have equivalent skills in the area of real estate documentation to those completing the Bachelor of Business (Property). Ha~ing 3.5.2.1 Conclusion - Real Estate Documentation The conclusion of the Review Panel is that those who have completed law degrees and are admitted, or are entitled to be admitted, to practise as a legal practitioner in this State are sufficiently skilled in the area of real estate documentation to adequately perform this aspect of the work of a land agent as defined by the Act. - - - - .... . - - - - - - - - - - - - -_ _~ I ,.oGo~~ National Competition Policy Review Lalit! Agents Act 1994 Supplem cntary Report Pag e 37 3.5.3 Propertl( Management Services Arguments were put to the Review Panel in the course of its deliberations that skills in property management were essential in a land agent's practice. However, the force of these submissions varied between noting that such skill was an essential element required to ensure the survival of an agent's business in the current market, and noting that such skill was actually essential to ensure that consumers' real property investments were adequately dealt with. If the first form of submissions were the sole reason for requiring skill in property management, then the Review Panel would have no hesitation in rejecting this competency as being an essential one. Restrictions on competition which are solely concerned with maintaining the health of a business or ensuring business success for individuals cannot be justified under competition policy principles. However, while the second submission was not pressed strongly in any of the evidence received by the Review Panel, further consideration of this issue has lead the Review Panel to the conclusion that the underlying argument in this case is strong. If consumers' investments are not appropriately managed by whosoever they choose to act as their agent, then they will incur losses. The losses in such instances will easily spread from being isolated private losses to public losses through the opportunity costs of the loss. The initial question to be asked then is how does property management fall within the ambit of a land agents work as defined by the Act? The answer to this question is quite simply that the negotiation of a lease on the behalf of a property owner, which is the fundamental element of property management, falls clearly within the definition of land agent in section 4 of the Act. To this extent at least, the Review Panel has concluded that competency in property management is necessary for the work of a land agent to be performed appropriately. In reaching this conclusion the Review Panel notes that there are elements of what is generically termed "property management" which do not fall within the definition of a land agents work for the purposes of the Act. Nor do these elements fall within the regulated scope of sales representatives' work per se. Matters such as the inspection of property, arranging for maintenance work and so forth are beyond the regulated scope of a land agent's work. This is reflected in the common practice within the industry to employ specialist property National Competition Policv RC 'I '/l'\I ' l.an d Ag(·11l.I Act / C)C).J Page 38 SII! ' p/CJ)/ C'/l f W ' I' RC J!!..!!2 managers, who are not necessarily otherwise qualified as land agents or sales representatives, to carryon these roles in land agent's businesses. Therefore, while skills in property management form part of the work of an agent, it is limited to the negotiation of a lease, and as a corollary, the collection of rent money as trust monies. The next question to be addressed therefore is the extent of coverage that a law degree provides in this area. The Review Panel notes that the Bachelor of Business (Property) contains a subject entitled Real Estate Management and Agency Practice which has as one of its elements a discrete topic Management of Properties. The objectives of this element are described as:• • • • brief overview of the legislative requirements; the role of a property manager in an agency office how the manager derives fees for the agency; and an understanding of why the property manager needs to be able to show initiative. By way of contrast, a law degree provides students with skills in the areas of not only general leasing principles, but also retail and commercial leasing matters as well as principles of agency. Further, the elements of topics three and four of the real estate documentation course comprising part of the practical legal training requirements, outlined above at Part 3.5.2, deals expressly with leases and the commercial (including taxation) implications of leases. Having considered these matters, the Review Panel has been drawn to the conclusion that those who have completed law degrees and are admitted, or are entitled to be admitted, to practise as a legal practitioner in this State have greater competence in the area of property management than those completing the Bachelor of Business (Property). Nationul Competition Policy Review Land If gents A('I 1994 !::Ilf/p l elll ell tlI r v Rep o r l Page 39 3.5.3.1 Conclusion - Property Management The conclusion of the Review Panel is that those who have completed law degrees and are admitted, or are entitled to be admitted, to practise as a legal practitioner in this State are sufficiently skilled in the area of property management to adequately perform this aspect of the work of a land agent as defined by the Act. 3.5.4 Appraisal All the evidence presented to the Review Panel during the course of this Supplementary review process highlighted the importance of this element of land agency practise in the business of a land agent and in the protection of consumers. It was submitted that competency in appraisal is one of the key underlying elements of being able to properly negotiate the sale or purchase of real property on behalf of another. As it did in the Final Report, the Review Panel accepts this reasoning. It is noted that the Real Estate Valuation component of the Bachelor of Business (Property) provides graduates with appropriate skills in property appraisal for Having given the purposes of carrying on business as a land agent. consideration to all the components of a law degree, as well as the further skills provided through the postgraduate practical legal training course, the Review Panel has concluded, as it did in the Final Report, that there is no element of legal training which adequately addresses this skill. The Review Panel notes that this conclusion is supported by the evidence of Associate Professor Anthony Moore. Therefore the conclusion of the Review Panel in relation to appraisal skills is that those who have completed law degrees and are admitted, or are entitled to be admitted, to practise as a legal practitioner in this State do not have equivalent competence in the area of appraisal to those completing the Bachelor of Business (Property). National Competition POIUT Revie« Land Agent.1" A ct 1l)i)4 Page 40 Supplemcntarv Report 3.5.4.1 Conclusion - Appraisal The conclusion of the Review Panel is that those w h o have completed law degrees and are admitted, or are entitled to be admi tt e d, to practise as a legal practitioner in this State are not sufficiently skilled in the area of appraisal to adequately perform the work of a land agent as defined by the Act. 3.5.5 Listiflg Listing of property has been described to the Review Panel as the procurement by a land agent of a written authority from an owner of property to sell or lease that property. The Review Panel understands that this is often quite an involved and lengthy process, effectively involving bidding by land agents for the listings of owners on the basis of marketing proposals which sets out the agents' understanding of the relevant segment of the market as well as supporting arguments addressing why the particular agent is best able to sell or lease their property. The Review Panel notes that this course is also a part of the Bachelor of Business (Property) in so far as it forms a discrete element within the subject Real Estate Agency Management and Practice. The identified objectives of the listing element arer- • " A knowledge of the listing process from the first call to final signature on the agents agency agreement". An understanding of what agency means and what types of selling agencies are common (sale agency, open agency); 11 • An overview of residential features that will have an impact on the sale price and or marketability of the property; and How to get prospect for listings, in other words how does an agent get more listings? • It is unchallenged by any party that a degree in law provides a person with sufficient skills to understand the legal nature and requirements of the principles of agency. What is not apparent is whether these skills extend to the requisite levels in terms of the specific types of agency discussed at dot point one. . It is important in the context of the operations of the real estate market that the NC/(((J/la! Competition Policy Review Lund Agents Act j 994 SlIjJ !l'JIlC!I//m)' R eport p Page 41 players in the market are able to operate efficiently and appropriately towards consumers. Clearly an understanding of the types of agency common within the market will be beneficial for agents prior to entry into the market, as time and money will not have to be spent after entry in exploring these matters. This will also benefit consumers, as they will not have to bear the costs of this post entry training through agents' fee structures.?" Having considered the various elements of a law degree, and the elements forming the practical legal training course, the Review Panel has been unable to discern anything which demonstrated that legal practitioners are by virtue of their training skilled in the understanding of the listing process from first call to final signature or in the common types of selling/leasing agencies used in the context of the South Australian market. Further, the Review Panel has not been able to identify any element of a legal practitioner's training which adequately addresses the area of marketable features of residential properties which may have an effect of the sale/lease price and/or marketability of a property. This would appear to be a very important element of a land agent's work, and is linked directly to the definition of a land agent in section 4 of the Act. If a land agent is not able to assess the property in terms value or marketability in either the current market as a whole, or a particular segments of the market, then consumers face the risk of losing thousands of dollars in foregone income. Such an outcome would have a negative impact on the community as a whole, through the opportunity cost of that lost income; money which may have been more efficiently spent in one area of the community is in fact spent elsewhere. Although this might appear to be simply a distributive effect rather than a community loss per se, the Review Panel would note the efficiency aspects of this issue and stress that this loss of efficiency is perhaps more significant than is often recognized. The final element of listing generally relates to what has been described as "prospecting" for listings. While the Review Panel does not doubt that there are certain skills necessary to competently carry out this type of activity, it notes two things. Firstly, the Review Panel considers, and indeed has received strong evidence, that legal practitioners are required to seek out work on a daily basis. There is zo However, the Review Panel docs notc that there is the potential for agents to try and set off these preentry sunk costs when they do enter the market. Page 42 National Competition Policy Review Land Agents A ct 1994 Supplementary Report not reason to believe that there is anything particular to the real estate market which would make the task of finding work dramatically different to the task of finding work in any given sector of the economy. In short, seeking out work in the course of a business is a readily transferable skill throughout the market as a whole, and is not limited to one particular market such as the real estate market. Secondly, skills in this area are really a business survival matter, which will simply ensure the efficiency of an individual business. Putting things another way, "prospecting" is a marketing tool to be used by competitors in the course of competition between themselves. It is therefore not a consumer protection matter, nor is it a matter which can be justified under competition policy principles. The conclusion of the Review Panel in relation to "prospecting" is therefore that it is not a skill which relates the activities of a land agents as defined by the Act. In relation to the area of listing as a whole, the Review Panel concludes that while those who have completed law degrees and are admitted, or are entitled to be admitted, to practise as a legal practitioner in this State may have skills in relation to certain aspects of this field, they do not have equivalent skills to those completing the Bachelor of Business (Property) in the areas of:• • listing process from first call to final signature; marketable features of residential properties which may have an effect of the sale/ lease price and/ or marketa bili ty of a property; or the common types of selling/leasing agencies used in the context of the South Australian market. • The Review Panel notes that this conclusion is consistent with the evidence of Associate Professor Anthony Moore. National Com petition Policy Review Land Agents Act /994 Supplementurv Report Page 43 3.5.5.1 Conclusion - Listing The conclusion of the Review Panel is that those who have completed law degrees and are admitted, or are entitled to be admitted, to practise as a legal practitioner in this State are not sufficiently skilled in the areas of:• • listing process from first call to final signature; marketable features of residential properties which may have an effect of the saleflease price and/or marketability of a property; or the common types of selling/leasing agencies used in the context of the South Australian market; • to adequately perform the work of a land agent as defined by the Act. 3.5.6 Methods of sale The areas of methods of sale is really a compounding of two areas identified by the Review Panel as prima facie lacking from the training of legal practitioners; the conduct of sale by auction, and the conduct of a sale by private treaty. Once again, there is a topic taught as part of the Bachelor of Business (Property) which encompasses these areas. The identified objectives of this course are to:• • • understand all three main methods of sale; to understand the castings and procedures for all methods; and to understand that one method may be more suitable for a particular property than another method. A consideration of legal practitioner's training, a law degree and practical legal training, leads the Review to a conclusion that this training more than adequately equips them with to understand and deal with all three main methods of sale in the real estate market. No serious argument has been presented to the Review Panel at any stage which would suggest that this conclusion is in any way flawed . National Competition Policy Review LU1/d AgC'1//.\ A ct 1l)C).f Page 44 _SJ(f!eJ~!!5.!.!!!IIT _ R.!J~~ I It is however an entirely different matter in relation to the other two objectives identified in the Bachelor of Business (Property) methods of sale course. Skills in the costings and procedures of any given selling method and in appreciating the suitability of one method over another in any given circumstance is quite clearly important in the real estate market. Without such skill, land agents would be at risk of not acting in the best interests of their principals (consumers) when selling their property. By way of example, the Review PaneL understands that one of the peculiar features of the Adelaide real estate market in recent times has been the trend away from sale by private treaty towards auction sales in particular geographic areas. While this may be an appropriate trend in the context of the Adelaide market generally, and the Review Panel makes no comment on this, an auction sale may not be in the best interests of a consumer in every case. If the consumer's land agent is not alert to such matters then they will not achieve the best returns for the consumer. Once again, the Review Panel would be concerned over the efficiency aspects of such an outcome. It is also worth noting that the castings and procedures of the various methods of sale differ significantly. While legal practitioners have a high level of knowledge and understanding of the legal aspects of these matters, the actual dollar castings and formal procedures are not dealt with as part of their training. Although it may be argued that costings and procedures are things which could be learned "on the job", it would not be in the interests of consumers to allow this to occur. It is quite clear to the Review Panel that consumers could bear cost in two ways in such a situation:• They could bear the costs of misjudgement of service or sale price estimates by their land agent; and They could bear the costs of a mishandled or inappropriately conducted sale." • Similarly, the Review Panel has not been able to identify any aspect of legal training which addresses the suitability of one method of sale over another on a case by case basis. The Review Panel notes in this context that unlike legal practitioners and conveyancers, land agents arc under no statutory compunction to obtain professional indemnity insurance. However, it is also noted that holding professional indemnity insurance is a prerequisite for membership of the Real Estate Institute or South Australia. 21 National Competition Policy Review l.an d Agellt.l" A ct I CJCJ4 :'; liJ)J} /r.:../}.. ~.e l/ liI l'1 ' Ref!ort Page 45 Therefore, the Review Panel has concluded that while those who have completed law degrees and are admitted, or are entitled to be admitted, to practise as a legal practitioner in this State may have skills in understanding methods of sale, they do not have equivalent skill to those completing the Bachelor of Business (Property) in the areas ofr- • • understanding the castings and procedures for all methods; and understanding that one method may be more suitable for a particular property than another method. 3.5.6.1 Conclusion - Methods of Sale The conclusion of the Review Panel is that those who have completed law degrees and are admitted, or are entitled to be admitted, to practise as a legal practitioner in this State are not sufficiently skilled in the areas of:• • understanding the costings and procedures for all methods; and understanding that one method may be more suitable for a particular property than another method; to adequately perform the work of a land agent as defined by the Act. 3.6 CONCLUSIONS ON COMPARISON OF DEGREE COURSES While the Review Panel considers that there is either directly or indirectly a good deal of intersection between the content of a law degree and that of the Bachelor of Business (Property), there are some areas in which a law degree does not provide equivalent or sufficient skilL Some of these deficiencies, notably trust accounting and real estate documentation, are adequately dealt with by legal practitioners practical legal training. However, other crucial deficiencies are not. The Review Panel has concluded that the qualifications held by an admitted legal practitioner, or a person entitled to admission in South Australia, are not comparable to those who hold a Bachelor of Business (Property) conferred by the University of South Australia in the areas of:- National Competition Policy Revtew Land Agents Act /9f)4 Pa ge 46 Supplementury Report • • appraisal; and undertaking property sales by private treaty and conducting property sales by auction, limited to the discrete areas o£:o listing process from first call to final signature; o marketable features of residential properties which may have an effect of the sale/ lease price and/or marketability of a property; o the common types of selling/leasing agencies used in the context of the South Australian market; o understanding the costings and proced ures for all methods of sale; and o understanding that one method may be more suitable for a particular property than another method. The Review Panel therefore further concludes that legal practitioners, OJ' those entitled to be admitted as legal practitioners, are not sufficiently skilled to perform the activities of a land agent as defined by the Act by virtue of their legal qualifications alone. However, if legal practitioners can demonstrate adequate and appropriate skills in the two identified areas, the Review Panel sees no reason why legal qualifications in combination with such skills should not be sufficient to allow an applicant to satisfying the qualifications entitlement criterion under section 8(1) of the Land Agents Act 1994. It must be noted that in reaching this conclusion the Review Panel is in no way advocating the adoption any particular course which would provide the requisite skilL For the Review Panel to make such recommendations would be entirely beyond the scope of this Supplementary Review. Such matters will need to be dealt with by the relevant licensing authority should the recommendation of the Review Panel be accepted by the Government. National Competition Policy Review Laud Agents Act 1994 Supplementarv Report Page 47 However, the Review Panel notes that it does not consider that it is necessarily appropriate for an applicant to have undertaken a separate course in each area listed . In light of the evidence received by the Review Panel, it may be more a ppropriate that a short course be developed incorporating various elements which would either separately or in combination cover the various skills iden tified as lacking. This is particularly so given the relatively brief treatment of the identified areas as discrete elements of a broader single subject offered as part of the Bachelor of Business (Property) by the University of South Australia. CONCLUSION The conclusion of the Review Panel is that the qualifications held by an admitted legal practitioner, or a person entitled to admission in South Australia, in combination with demonstrated skills in:1. Appraisal; and Undertaking property sales by private treaty and conducting property sales by auction, limited to the discrete areas of:- Listing process from first call to final signature; - Marketable features of residential properties which may have an effect of the saleflease price and/or marketability of a properly; - The common types of sellinglleasing agencies used in the context of the South Australian market; - Understanding the costings and procedures for all methods of sale; and - Understanding that one method may be more suitable for a particular property than another method; 2. substantially equate to the skills provided by the Bachelor of Business (Property). National Comp etition Policy R e view Laue! A gel/is A CT /994 Page 48 SlIflP !ClI/ ell/(/l Y Rep o/'t. 3.7 RECOMMENDAnON OF THE REVIEW PANEL REGARDING LEGAL QU ALIFICATIONS The recommendation regarding legal qualifications as unanimously agreed by the Review Panel is set au t below. RECOMMENDATION The Review Panel recommends that the qualifications held by an admitted legal practitioner, or a person entitled to admission in South Australia, in combination with demonstrated skills in.1. 2. Appraisal; and Undertaking property sales by private treaty and conducting property sales by auction, limited to the discrete areas of:- Listing process from first call to final signature; - Marketable features of residential properties which may have an effect of the saleflease price and/or marketability of a property; - The common types of sellinglleasing agencies used in the context of the South Australian market; - Understanding the costings and procedures for all methods of sale; and - Understanding that one method may be more suitable for a particular property than another method; should be accepted in satisfaction of the requirements under section 8(1)(a) of the Land Agents Act 1994. National Competition Policy Review Land Agel/Is A ct J 994 Su pplenicnturv Report Pa ge 49 PART 4: COST BENEFIT ANALYSIS H 4.1 a ving concluded and recommended that there are alternative qualifications which could be recognized for registration purposes, the Review Panel is required under the terms of the Competition Principles Agreement to consider the costs and benefits of that recommendation. BENEFITS OF RECOGNISING FURTHER QUALIFICATIONS It is widely accepted that increases in supply within a market can cause a downward pressure on prices. In terms of the real estate market, an increase in numbers of those supplying land agent services will have a predicted outcome of lowering prices for consumers of those services. It follows that if the range of qualifications recognised for the purposes of gaining registration as a land agent is broadened, and thus the range of people entitled to be granted registration is broadened, it is likely that there will be new entrants into the market, and a corresponding reduction in prices for consumers. However, reductions in prices are not the only beneficial outcomes of increases in supply. Indeed, there are instances in which prices will not fall greatly on the entrance of new competitors to the market. In such situations an increase in competition will provide other benefits to consumers. Chief amongst these is the increased pressure placed on incumbents to explore innovative means of service provision. Such innovations, while not necessarily leading to lower prices for consumers, will nonetheless allow them to reap the benefits of different and perhaps more efficient methods of service delivery, which would not have arisen under the status quo. These positive effects of competition are not limited to the situation where new competitors actually enter the market, but extend also to the situation where there is a real or perceived threat of new competitors. Indeed, it has been noted that the mere threat of competition can be as effective as competition itself in delivering benefits to the community as a whole, with market incumbents altering their price/ service/ quality mix in response to the threat presented by potential entrants to the market." Therefore, broadening the range of appropriate qualifications will also have the effect of increasing the level of contestability in this market. 22 This theory is known as "contestability". Page 50 National Compeunon Poltcy Review Land Agent; A ct I CJCJ4 Suppiementarv Re!w/"/ The Review Panel notes that there is also a benefit to be derived through allowing those with a "different" source of qualification to enter H1l' market. While in no way criticising the current entry qualifications, the point must Ill' made that those entering the market with a different perspective bring with them the potential to deal with market situations in a fashion which may not have been considered by market incumbents. This is not to say that current means of performing land agent work are not appropriate, but rather to note that "there is more than one way to skin a cat". As discussed above, innovations in service delivery and business structures can deliver efficiencies to consumers which will in the long run benefit the community as a whole. It is efficiencies in the market that must be the focus of this debate. As has been noted by the Prod uctivity Commission'- "There is a widespread misconception that tire NCr reforms are solely about reducing prices to consumers. While this will often be the case and is all iniportant auicome, NCr reforms are aimed at more efficien t pricing. In some situations, this can involve increases in user and consumer prices:"> Thus when noting the benefits of allowing a broader range of qualifications to be recognised, the Review Panel is not simply looking at reducing prices by increasing supply, but is rather concentrating on potential increases in market efficiency overall. 4.2 ., COSTS OF THE RECOGNISING FURTHER QUALIFICATIONS is by its very nature a bitterly rivalrous process, with competitors vying with each other for market share. 24 In a competitive market there will necessarily be those who obtain a significant market share through their activities and there will also be those who are not able to maintain a viable market share. Those who are unable to maintain a viable market share will ultimately be forced to exit the market. Increasing competition in this market may therefore in theory result in some market exit. Co~petition 2.\ Impact of Competition Policy Reforms on Rural and Regional Australia, chapter 10: Summary of Impacts of NCP Reform, Productivity Commission, Productivity Commissioner website, h.t.tp: //w w w . p c .goy.~ u / i n g u i ry/c o m p o illin a l re p o rtli n d c x . h t m I 24 Queensland Wire Industries Ply Lid v. Broken Hill Ply Co Lid (1987) 75 ALR 331 National Competition Policy Review Land Agents Act /994 SupplC!11I ell tory Report Page 51 This potential for market exit was considered by the Review Panel in the course of its deliberations, and it notes that there are a number of matters which must be taken into account in this regard . Firstly, while it is accepted that there may be costs to individual competitors through market exit, such exits are of themselves merely private costs. National Competition Policy is concerned with deriving maximum community benefit from Australian resources, including legislation, for the whole community. Therefore, while there may be some private costs, and even wider community costs, arising as a result of increased competition, if the community benefit derived from that increase outweighs those costs then there is strong justification for it. In this case, the Review Panel considers that the identified benefits to the wider community more than offset the potential for some market exits by incumbents. This is particularly so when consideration is given to statistics relating to the real estate services market. Recent Australian Bureau of Statistics data shows that in the South Australian market average income for real estate services per business was $358,100 in the reporting period 1998 to 1999.25 By way of contrast, the market average income for real estate services per business in the reporting period 1995 to 1996 was $283,500. 26 This is an average rise in income of $74,600 in a 3 year period. These figures are particularly pertinent when one considers the numbers of new entrants to the market over the relevant periods and also the numbers of land agents registered from year to year. 27 Year 95/96 96/97 97/98 98/99 New Entrants 158 101 121 122 Total Number of Land Agents 2,521 2A07 2,435 2,261 What can be seen from these figures is that while there is a relatively high entrance rate to the market presently, there is also a relatively high exit rate such that the numbers of market incumbents at anyone time has been in a slight 2~ Australian Bureau of Statistics, R(!(11 Estate Services Industry 1998-99, 8663.0, May 2000 ~b A ustralian Bureau of Statistics, Real Estate Services Industry 1995-96, 8663 .0, September 1997 ~7 Source: Office of Consumer and Business Affairs registration statistics and the Commissioner for Consumer A ffairs' A nnual Report series 1995-95 to 1998-99 . Page 52 National Competition Policy Review Land AgcntsAct t vv-t SIIPP!I'lI/ el1fmT Repo rt decline over the relevant period. This has two impacts in terms of the current discussion. Firstly, it demonstrates that there is already a relatively high exit rate in this market. It is significant, in the Review Panel's opinion, that there is absolutely no evidence to suggest that this exit rate is imposing high levels of cost on the wider community, or even high levels of private cost within the community. This tends to suggest that even if there were an increase in competition, and some exits from the market, there would not be a great level of community cost incurred. Secondly, the rise in income levels over the period 1995-96 to 1998-99 when considered in combination with the decline in actual numbers of land agents shows that there has been an increase in profit taking within the market. As a result, the market will clearly be able to easily absorb an increase in competition without fundamental structural change. Therefore, the Review Panel does not consider that market exits carry a great weight in terms of costs arising from increasing the range of qualifications acceptable for registration purposes. 4.2.1 Conflict oflntcrest - tire potential for costs A more real concern in the opinion of the Review Panel is the potential for conflicts of interest to arise, and thus for costs to be incurred by consumers if legal practitioners who gained registration as land agents were able to act as agent in relation to a sale and were also able to perform conveyancing in relation to tha t sale. Further, in competition terms, there would be a significant level of discrimination if certain registered land agents, namely those who also practise as legal practitioners, were able to gather excess profits from conveying land they had arranged to be sold, while others land agents were not able to earn such profits. The Review Panel considers that this would be an unacceptable outcome and, if permitted, would militate against the adoption of its recommendation. However, section 28 of the Land and Business (Sale and Conveyancing) Act 1994 provides that:- National Competition Policy Review Latul Ag(,I/I.~· A ct 1994 .S·lIppleI/lI!JlIWT Report Page 53 Preparation of conueijancing instrument by agent or related persoll 28. If a cOI/(leyancing ill stru ment (other than one to giue effect to a transactiou ill u.hict. the ngent participates (IS a purcltaser or mortgagee of land) is prepared l'y 1111 agen], or a persol1 w!Jo stands ill a prescribed relationship to an agent, the agellt nnd tlte person hy tulunn the instrument is prepared are cacli guilty of all offence. Maximum penttlts}: $2500 This section prohibits any person registered as a land agent from preparing conveyancing instruments, and applies whether or not the preparation is gratuitous or for fee or reward. The prohibition applies to every person registered as a land agent, no matter what other occupation they may practise. Even if a person held registrations as both a conveyancer and a land agent, section 28 precludes them from ever preparing a conveyancing instrument. Similarly, even though a person may be admitted as a legal practitioner, and prima facie entitled to prepare conveyancing instruments, if he or she were also registered as a land agent section 28 would preclude their preparing any conveyancing instruments. It is perhaps convenient to note at this point that despite recent media and other speculation, legal practitioners are as of right permitted to convey property. Indeed, this is a core legal function which has, in this State, been opened to competition from laypersons for a significant length of time. Conveyancers, formerly known as land brokers, thus practise in a sub-set of legal practise which is specifically allowed under Legal Practitioners Act 1981. It is incorrect therefore to assert that there have been recent changes "permitting" legal practitioners to perform conveyancing. The scope of the section 28 prohibition is not limited simply to those who might be registered as a land agent as well as being a legal practitioner. The prohibition is extended to all of those who are in a prescribed relationship to the land agent. Section 26 sets out the definition of prescribed relationships as follows:Interpretation of Part 5 26. (1) For the purposes of this Part, a person stands in a prescribed relationship to all age11 t if the person(a) is all employee of the agent; or National Competition Policy Rev/ell' Land Agents Act / C)C)4 Page 54 SrtfJ/ l/ ClJ/ef/rar.l' Rep o r t (b) IS a partner of the agent; or (c) is all employee of or is remunerated by, a body corporate anti(i) the agent is ill a position to control the conduct of the affmrs of tlu: IlOtiy corporate; or (ii) tile agent is a director of, or a sltareltolder ill, the body cornonttc and the Llody corporate is not a public cOlllpal/Y as defined /11 llu: Corporations Lnu: ; or (iii) the agent is also an employee of, or is also rentunemteti flY, the body corporate. If ci'1egal practitioner registered as a land agent were in partnership with another practitioner, the prohibition would extend to precluding the partner from preparing any conveyancing instruments so long as the legal practitioner remained registered as a land agent. The Review Panel considers that this strong prohibition negates the possibility of costs arising for consumers from conflicts of interest, as legal practitioners holding registration as land agents will not be able to perform any conveyancing work while registered. This is so notwithstanding the declaratory provisions of section 27 of the Land and Business (Sale and Conuesjancing) Act 1994. Any concern over cost being borne by consumers through abuse of conflict of interest situations is thus unwarranted, as the present regulatory scheme under the Land and Business (Sale and Conveyancing) Act 1994 absolutely prohibits such behaviour. Tnerefore, there is no potential for" one stop shops" or cradle to grave" land agent and conveyancing services to be provided by legal practitioners who also hoici registration as a land agent. II Further, the existence of the prohibition and its extended operation removes the potential for discrimination between competitors within the market which would otherwise be an unjustifiable restriction on competition. The Review Panel wishes to emphasise strongly that this is a clear, unequivocal and crucial prohibition which is fundamental to the reasoning underpinning the recommendation of the Review Panel. If that recommendation is to be implemented, then the Review Panel would suggest that the existence and scope of the prohibition should be carefully explained to all interested parties. National Competition Policy Review Land Agents Act j 994 Supplcm enrary Report Page 55 The Review Panel also notes that the maximum penalty which may be imposed for a breach of section 28 is relatively small, $2,500.00. Given the significance of this prohibition not only to the recommendation of the Review Panel, but also in the general sense within the market, the Review Panel suggests that cons id eratiou be given to increasing the level of this penalty. 4.2.1.1 Conclusion - Conflict of Interest Costs The conclusion of the Review Panel is that section 28 of the Land and Business (Sale and Conveyancing) Act 1994 prevents all land agents from performing any conveyancing work whether or not for fee or reward and irrespective of any other occupation the land agent may pursue. The section 28 prohibition provides fundamental protection to consumers by preventing conflicts of interest in dealings in land, as well as removing what would otherwise be an unjustifiable discrimination between competitors within the market. The Review Panel would suggest that consideration be given to increasing the level of penalty which may be imposed for a breach of this section. 4.3 COST BENEFIT ANALYSIS On the basis of the foregoing reasoning, the Review Panel considers that while there is the potential for costs to arise if the range of qualifications acceptable for registration purposes is expanded, these costs are in the main of a private nature. However, the key non-private cost identified by the Review Panel which could arise from implementation of the "legal qualifications" recommendation is potential for discrimination within the market by allowing those registered as both legal practitioners and land agents to prepare conveyancing instruments, while all other land agents are prohibited from carrying out this work. In such a situation there would be a sector of the market which was given extra ability to earn profits without any justification. This would be an inefficient system of regulation and could not be justified under Competition Policy Principles. In this regard the Review Panel has noted and analysed the prohibition contained in section 28 of the Land and Business (Sale and Conuevancing) Act 1994. This prohibition prevents aU land agents, and those in prescribed relationships to Page 56 National Competition Policy Review Land Agents A ct 191)4 Supplementary Report land agents, from preparing conveyancing instruments, irrespective of whether that preparation is for fee or reward. Under the terms of this prohibition, it does not matter that the land agent may also carryon another occupation, for example as a conveyancer or legal practitioner; once they fall within the definition of "land agent" under the Laiu! AgeJlts Act 1994, then the prohibition applies. Further, it does not even matter if the person is not registered as a land agent under the Act, so long as they fall within the ambit of the definition of "land agent" then prohibition will capture them. Therefore, as the prohibition avoids the discriminatory and conflict of interest costs inherent in allowing land agents who are also legal practitioners to perform conveyancing, the Review Panel concludes that this cost is not relevant to its considerations. However, in the absence of such a prohibition, this cost would be given a significant weighting in this analysis. In light of the substantial potential benefits which could accrue to the wider community through a broadening the range of qualifications leading to registration as a land agent, the Review Panel has concluded that these benefits outweigh any costs.