CBA & Coposit Housing Initiative Qorus-Infosys Finacle Banking Innovation Awards 2024

CBA in collaboration with proptech platform Coposit offers a pioneering approach to property ownership by enabling property buyers to secure a property with a minimal upfront deposit (as low as $10,000) and make incremental payments over the construction period.

1. Objectives: - Facilitate and Speed up Home Ownership: Make home ownership accessible by allowing buyers to secure properties with as little as $10,000.

- Support Property Development: Provide developers with a mechanism to secure necessary financing for construction projects. - Boost Housing Supply: Help increase the supply of residential properties to meet growing demands in the Australian housing market. Deliver Great Customer Value: Platform is free for property buyers to use with zero interest.

2. Current State of the Market: -Apartments Market: Apartments have become increasingly popular among first home buyers due to their relative affordability compared to standalone houses. The lower price point of apartments makes them an attractive option for those entering the property market.

- Off-the-plan Sales: Purchasing off-the-plan is often the most cost-effective way to buy property. Buyers can lock in current prices and benefit from market appreciation by the time the property is built which normally takes two to four years. It also allows buyers to plan for the future, knowing that they have secured a property.

- Traditional Mortgage Products: Traditional mortgage financing generally cannot be provided until the apartment is completed and ready to move in. Typical apartment construction takes between 2 and 4 years to complete.

- Deposit Challenges: The challenge with the current market is that the buyers need to first save 10% deposit before they can lock in off-the-plan purchase and then wait two to four years until the apartment is built. In the current economic environment, it could take a number of years to save up this initial deposit delaying the home ownership dream for many potential buyers. Coposit initiative has solved this issue.

3. Reasons Behind the Initiative: Australia’s housing market is among the most expensive in the world. The latest Demographia International Housing Affordability Report ranked all of Australia's major housing markets as 'severely unaffordable' (or worse), placing it as the second least affordable housing market in the entire world. A key factor in this is a lack of supply, which has been constrained by limitations on how property firms can access finance.

This affects our customers, people, and communities in which we operate. We are driven by our purpose of building a brighter future for all and seek to deliver innovative solutions that have positive impact on the community.

Housing Crisis: • Affordability - Australia is experiencing severe shortage of housing. Housing affordability is at record lows. Many potential buyers are unable to save the significant deposits traditionally required for property purchase. • Rental Shortages - rental vacancy rates are at historic lows, exacerbating the need to deliver more housing. • Property Prices- rising property prices and economic pressure make it increasingly difficult for first-time buyers to enter the property market.

Delivering Innovative Financing Solution: • Incremental payments to drive savings – By allowing incremental, interest-free payments, Coposit makes the property purchase process more manageable for buyers. It enables buyers with a lower deposit to get a foothold on securing a property while saving for that property over the period of the development phase, therefore securing the property at today’s prices tomorrow. • Support capital flow into residential development – this initiative allows property developers to secure necessary pre-sales to obtain construction financing, thus speeding up project completion and delivering new housing stock into significantly undersupplied markets sooner.

4. Sources of Inspiration: - Housing Affordability Reports – Studies highlighting the increasing difficulty for Australians to afford homes inspired the creation of Coposit.

- Strong Demand – Feedback from potential buyers and developers showing that buyers are often struggling with the initial deposit even when they have sufficient income to afford a mortgage. This is delaying projects commencements that often have to run six to twelve moth marketing campaigns to secure sufficient pre-sales before the construction can commence.

5. Technical: - Pre-qualification assessment: Data availability and open banking play a critical role in Coposit operation’s allowing pre-qualifications assessment to be completed quickly and accurately. By leveraging open banking data, Coposit and CBA can assess potential buyer’s financial health and ensure their ability to save the necessary deposit during the construction phase and ability to secure a traditional mortgage upon completion.

- Risk mitigation: This assessment process mitigates the risk for both buyers and developers, providing confidence that the buyers will be able to meet their financial obligations.

- Security of Funds: CBA ensures that buyers’ savings are held in protected trust accounts (CBA Statutory Trust Account) with CBA and remain safe until the project is completed and ready for settlement.

Conclusion:

Collaboration between CBA and Coposit represent a significant innovation in the property market. By addressing critical issues of affordability and accessibility, this initiative not only supports home buyers but also stimulates the housing market, offering a practical solution to Australia’s housing crisis. The innovative savings model and the strategic support from a major financial institution like CBA set this initiative apart as a leading example of how technology and finance can collaborate to solve major social issues.