Australia is entering a new era of regulatory oversight as recent Anit-Money Laundering (AML) reforms bring substantial changes to the real estate sector. Legislation passed last year will extend AML obligations to “tranche two” professions which will capture real estate agents, buyer’s agents, property developers, lawyers, accountants and conveyancers adding additional obligations in their work.
Effective from 1st July next year, real estate agents will become “reporting entities” under the regulatory regime, with AUSTRAC extending its oversight to cover property service industries. I’m not entirely convinced this new reporting regime will make a significant impact given money laundering through property in Australia is miniscule comparative to the overall volume of transactions. In 2021, $187m in property assets were seized due to money laundering activity – that’s about 200 property sales across Perth on average in a year or about 0.3% of all transactions.
Agents will face a suite of new responsibilities including the need to enrol with AUSTRAC as a reporting entity, develop a compliance program within their businesses, verify buyer identities (currently limited to sellers), monitor and report suspicious transactions and maintain detailed records of client interactions and transaction activity.
These obligations come with both potential benefits and challenges. Obviously, it is to everyone’s benefit to crack down on money laundering activities and agents do have a role to play in that. Australian property markets have been a target for criminal money laundering activity albeit on a moderate scale (such as placing a large deposit on a property subject to provisions that allow the contract to fail then having the deposit returned ‘clean’) and the new regulations will make real estate a more difficult target for money laundering activity. Meanwhile, compliance costs will rise for agents estimated (based on the experience of New Zealand agencies who adopted these changes in 2023) at around $45,000 annually for the average agency.
There will also be risks to the agent for non-compliance (including business-ending fines) if the agent inadvertently falls victim to a sophisticated, hard-to-detect money laundering scheme. Agents will have to be even more vigilant in protecting client data too with a breach providing hackers access to significant amounts of client identification. Big companies like Optus and Qantas are well equipped to deal with such events, but for your local real estate agent, a large ID theft is likely to break them.
Irrespective, real estate agencies must now gear up for a regulatory overhaul. Preparation includes establishing robust internal compliance, budgeting for added overheads, educating staff, and adopting cautious due diligence practices. While this may initially burden businesses, it also presents an opportunity: firms that adapt effectively can bolster trust with clients and the communities they serve and position themselves as reputable stewards of the market.
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