Aussie Home Loans founder John Symond is laughing all the way to the Commonwealth Bank. Symond, who took on the big banks in the cut throat home lending space, recently sold a 33 per cent stake in Aussie to the CBA for what is believed to be about $100 million. The sale leaves a sweet taste for Symond who lost everything in the early 1990s after a failed business venture left him penniless.
“I didn’t go bankrupt and I paid the money back,” Symond eagerly points out.
In a wide-ranging interview, Symond offers his views about the housing market, unemployment, interest rates and the outlook for the Australian economy. The 61-year-old father of two talks about Aussie, his personal investments, hobbies and the rewards of success.
Symond says the Reserve Bank of Australia pushed official interest rates half a percentage point too high (a rise of 0.25 of a percentage point in February and March) because it was too focused on curbing inflation. Now the Reserve Bank is cutting rates as part of a combined strategy to keep Australia out of recession, but only time will tell. The Australia economy and banking system are robust enough to avoid a recession provided there is no “further significant deterioration in the US economy”.
He predicts the Reserve Bank will continue cutting the official cash rate to possibly 3.5 per cent by the third quarter of 2009 “depending on the gravity of the US fall-out”. The Reserve Bank has cut the cash rate from 7 per cent in September to 5.25 per cent in November. Borrowers should stick with variable loans and resist the temptation of switching to attractive fixed rates, Symond says.
But even lower interest rates will not stop housing foreclosures and unemployment rising. “Unemployment is the single biggest risk Australia faces,” Symond says, forecasting the rate to rise up to 7 per cent in response to a slowing Australian economy. “It’s going to be tough on hundreds of thousands of Australian families if you lose your job and can’t find another.”
Symond says declining building approvals and lower interest rates are likely to sustain housing prices, but put even more pressure on the rental crisis. There’s a widespread reluctance to build new houses in the absence of consumer and buyer confidence.
He says federal first home buyer grants of $14,000 for established homes and $21,000 for newly built houses is a “band-aid solution” that doesn’t address the real and wider problem of land shortages, particularly in Sydney. More land needs to be released and the hefty costs of providing new road, power, gas and other services should be fully or partially met by local, state and federal governments under a collaborative approach.
Cutting the cost of services to a new subdivision will make land far more affordable. Symond says increasing government grants simply enables first home buyers to stretch their budgets, while at the same time letting governments off the hook in having to deal with land shortage problems.
Symond says properties within a 15 km radius of capital cities will continue offering the best capital growth prospects because established infrastructure will sustain demand. People want transport, shops, schools, and young people want to rent close to entertainment precincts. He urges buyers to do their homework on property prices in suburbs they want to live and to resist over-stretching themselves in times of increasing uncertainty.
Symond’s reward for building the Aussie empire is a Sydney Harbour property set on two thirds of an acre at prestigious Point Piper. He reckons the property featuring a swimming pool is worth between $5 million and $6 million, but he has several other residences to round out an enviable portfolio. With the Harbourside mansion comes a boat, a 90-feet Sunseeker worth more than $1 million, to cruise around Sydney on weekends.
A love of Australian contemporary art has led to a substantial collection, including works from Brett Whiteley and Sidney Nolan, worth millions of dollars. His love of paintings also doubles as a terrific investment in dollar terms as does his art deco furniture collection.
“Whiteley was a complex individual, but an amazing artist and this is evident to me in his paintings,” Symond says. “Whiteley could tell a story through his paintings. And Sidney Nolan, another amazing artist, with an iconic reputation – well he took on the establishment. Australians like to see a rebellious nature and character.”
Symond owns horses, about half-a dozen broodmares, but considers breeding more of a hobby than an investment. He part-owned the horse Red Anchor who won the 1984 Victorian Derby and Cox Plate, but Symond says he’s not a punter except for possibly three $50 bets a year.
He doesn’t own shares, saying he is reluctant to invest in companies where he can’t control the decision-making process. He says he earns about $500,000 a year and is critical of multi-million dollar executive packages when shareholder value has been destroyed.
“No one working in my company earns $1 million a year,” executive chairman Symond says.
Worse are the multi-million dollar golden parachute packages for executives of failing companies listed on global exchanges.
“They shouldn’t get a cracker,” he says.
But it hasn’t been all beer and skittles for this Sydney high flier. He estimates a failed joint venture with a subsidiary of the State Bank of South Australia in the early 1990s left him owing creditors about $5 million. He says he was forced to close his successful investment property business as a result of the failed joint venture and lost everything he personally owned, including the family home. He had to sell commercial properties at a third of the value in times of about 20 per cent interest rates. It was an expensive and “naïve” experience.
He started Aussie Home Loans in 1992 with no backers and no money. “Everyone thought I was crazy,” Symond reflects. “There were days when I didn’t think we would last a week. It was reasonable to think that I would fail.”
Symond says Aussie now makes a profit of about $30 million a year before interest and tax. He says his company is the strongest of the non-bank lenders and CBA’s investment will enable Aussie to explore additional opportunities and give it access to wholesale funding, while maintaining its independence. The overseas credit markets are still frozen in November, and may take some time to thaw.
Symond, who was awarded an Order of Australia in 2002, repeatedly says he’s a “proud Aussie”. He genuinely believes Aussie’s existence has meant lower home loan interest rates for all borrowers. He says accessing cheaper overseas funding via securitisation in the 1990s meant he did not have to rely on the banks, enabling him to pass on savings. He says his strategy forced the Australian banks to substantially drop interest rates, with the CBA cutting 2.7 per cent in 1997.
He counts this as a major achievement.
Symond says he has no plans to retire as Aussie’s in “growth mode”. The company has a loan portfolio worth about $24 billion and 220,000 home loan customers. Aussie corporate and franchised shopfronts will continue to open and the number of mortgage advisers has grown beyond 500 in city and country areas.
Symond says his biggest investment is his business. But he says he’s putting some of his latest windfall away “for a rainy day”.
“You need to be liquid to weather the storm,” he says.