Kylie Davis: (00:01)

Welcome to the Proptech podcast and happy new year for 2021. It's Kylie Davis here and I'm delighted to be your host again this year as we explore the brave new world where technology and real estate collide. I passionately believe we need to create and grow a sense of community between the innovators and the real estate agents and the property industry, and sharing our stories is a great way to do that. Now, the aim of each episode is to introduce listeners to a proptech innovator who is pushing the boundaries of what's possible and explore the issues and challenges raised by the tech and how they can create amazing property experiences.

Kylie Davis: (00:39)

And my guest in this episode is Mark Macduffie, managing director and one of the founders of Downsizer.com, a very brand new proptech that's launching in March this year that tackles the shared problems faced by couples wanting to sell the family move and move into something smaller. Mark has an impressive background in technology in the banking sector having worked in senior technology roles at CommBank for 11 years, as well as experienced building technology for banking, insurance, and not-for-profits across Australia and globally.

Kylie Davis: (01:13)

According to the ABS, there's more than seven million Australians over the age of 55 and a significant proportion of them own their own homes, many outright. And over the past 25 years, property values have risen by more than 400%. So that makes downsizers a highly valuable property sector, but they can still find it difficult to coordinate the financial hurdles required to purchase a new home even though they pose a very low default risk and even though the property they currently own that they will be selling is highly desirable. And at the same time, there are credit rules for new developments are getting tougher.

Kylie Davis: (01:51)

So here to tell us all about it and to give us a real time example of blockchain in proptech, Mark Macduffie. Welcome to the Proptech podcast.

Mark Macduffie: (02:00)

Thanks Kylie. Happy new year and thank you for inviting me.

Kylie Davis: (02:03)

Yeah, it's my first one, so gosh, god knows where this could go. I'm totally out of practise.

Mark Macduffie: (02:14)

Well, we won't set a new benchmark for the wrong reasons, but hopefully it's the right reasons.

Kylie Davis: (02:16)

Oh absolutely. So Mark, we always start off with your elevator pitch. So tell me about your elevator pitch for Downsizer.

Mark Macduffie: (02:23)

Oh elevator pitch? Well, our mission is to provide a secure and affordable way to downsize into your new home. We help downsizers with enough equity in their existing dwelling to basically release that equity and purchase off the plan properties in a seamless and frictionless way digitally.

Kylie Davis: (02:41)

Awesome, I love it. So what is the problem that Downsizer's solving in some more detail? Because I am frighteningly close to almost downsizing, so without ageing myself. So step us through the two different scenarios as someone who is a downsizer themselves and then also what the solution does for developers.

Mark Macduffie: (03:06)

Sure. There's two sides of our initial release which is, as you said, downsizers or anyone actually with net equity in an existing dwelling that is more than a property they're looking to buy off the plan, unless they hear it's residential property off the plan. So we're basically joining two sides of that marketplace. Buying and selling property off the plan can be a pretty daunting experience depending on which side of the equation you sit. It can be expensive, it can be risky, and it can be inefficient. But the property buying process hasn't really changed a great deal in decades. Only up until maybe 10 years ago, you start to see a lot of digital change and improvement in settlements like PEXA or conveyancing, you're starting to move towards that fully digital model. My background is actually in banking as well, so we're seeing that home loan process as digitised.

Mark Macduffie: (04:06)

So the problem that we're trying to solve at its outset is that for downsizers or purchasers, finding the deposit to secure your future home can mean uprooting your life and unnecessarily draining your nest egg early. And even when you've done that, how can you find a trustworthy developer at already that point in your life where it's probably your last large buying decision or financial buying decision, and you're at a vulnerable point in your life. For developers, on the other side of the ledger, property developers are finding it harder and harder as banks continue to change and increase lending hurdles. So in order to drill down on construction finance, property developers have to hit at least 100% of debt cover before construction finance is released by the banks. In some cases, we spoke to developers when there was a drop in the market, the developers have to hit 110% or 120% of their debt cover before construction finance is released.

Mark Macduffie: (05:05)

And even then, when the developers are [inaudible 00:05:08], they've passed the construction finance, what happens if the market drops and the sales fall through before settlement? The developer's left with a property that's worth less than what it was when it was contractually sold and nobody wins there.

Kylie Davis: (05:22)

It is a really interesting kind of parlour problem, isn't it, because anyone who is downsizing or thinking about downsizing in the next even between now and 10 years time is going to have in their collective memory the GFC. And during the GFC, we saw all these big developments being built and people being stuck with deposits and having to pay out on properties that weren't worth what they had started off with. So there's a lot of anxiety around that.

Kylie Davis: (05:50)

And I think also too, anyone who's downsizing or considering downsizing at the moment is aware that there's not a lot to buy out there. But you certainly don't want to downsize until you've found the perfect property to downsize to. But you need to do that to release the money to then either put a deposit down or there's a lot of finance wrangling required to get yourself organised to go through it all.

Mark Macduffie: (06:20)

That's it. It can be quite, as I said, depending on which chair you're sitting in, whether you're buying or selling or whether you're a downsizer or a purchaser or an agent, it's different sides of the problems if you like. But what we're seeing with downsizers, they're making a decision that is for convenience. They're releasing equity. Often, we certainly believe that a downsizer making a large, final decision, if the market actually drops a little bit, they've made the decision anyway and they will typically go through with the purchase because they might have a four or a five bedroom house, the kids or maybe the grandkids don't come around as often, and the upkeep is getting harder, perhaps there might be early health issues there that mean that you can't go up and down the stairs, so they're making a decision to buy a property that is more convenient for them. Perhaps, pre-COVID anyway, the driver might be to go travelling more and you find an apartment that you can lock up with no maintenance and no garden and no expenses.

Mark Macduffie: (07:20)

So we feel that even if there was a market downshift, downsizers would typically go through with the purchase anyway because they've been able to stay in their home that they've perhaps been in for 20 years. They don't have to liquidate assets. They don't have to sell that property and rent an interim property. They can just stay in their existing dwelling, plan for their future, plan for what they're going to do with their nest egg and COVID's gone, maybe we can travel. Perhaps we can release equity and actually put a deposit down for the grand kid's house.

Kylie Davis: (07:52)

Yeah, yeah, yeah, cool, okay. So how big an issue is this in Australia and globally in terms of how big a problem is it? So you had mentioned before about developers needing to come up with extraordinary amounts of cash to just release their finance for construction.

Mark Macduffie: (08:12)

Well, as I said, we're solving two sides of the problem here. We start with the downsizers... but we know the Australia market pretty well. We've got a lot of statistics on that and we're increasingly looking at this, the same problem mirrored in other jurisdictions. So in Australia, increasingly that baby boomer generation of 55 and above is the largest and fastest growing segment in Australia. There are 6.9 million people in Australia that are older than 55. And in that segment, according to the Australian Bureau of Statistics, of that 6.9 million, 42% or there abouts buy, are the buyers of new property's are over 55 and above. So that is basically [crosstalk 00:09:00]-

Kylie Davis: (09:00)

Wow.

Mark Macduffie: (09:00)

All new properties, a large and growing segment is buying new properties, 42%, depending on... there's differences in states and metropolitan and all that kind of stuff. But on average, there's a large segment. It's growing. If you think about the, depending on which property economist you follow, it's expected to be a trillion dollars or thereabout released as baby boomers elect for lifestyle equity release convenience. That segment controls more than 50% of Australian wealth.

Mark Macduffie: (09:33)

So what we're trying to do here is try to unlock that as a movement to make it as easy as possible for them at the same time as helping out the property developers. And we've seen evidence of this in Australia already. The Australian Tax Office, for those that don't know, identified this as an initiative to stimulate the housing market and make it more accessible for first time homeowners. As the prices were going up, I was one of those first time homeowners that couldn't get on the market three, four years ago, and the prices felt like they were going up by 5% and 10% every other quarter. The Australian Tax Office created this incentive for downsizers where they could put $300,000 of equity released from their primary residential property into their super tax free. That's $600,000 for couples. And in the first two years of that incentive being created by the Australian Tax Office, 15,000 individuals contributed an additional $3.4 billion of additional super in [crosstalk 00:10:41] from equity release.

Mark Macduffie: (10:41)

So the market is there. It is growing. And there's evidence that it's happening. So that's kind of where we're really crystallising our effort.

Commercial: (10:51)

If you're a startup, a scale-up or an established supplier of technology to real estate, join Proptech Association Australia. The Proptech Association Australia is a new national not-for-profit member association to grow the emerging proptech industry. We champion real estate and property technology, and work to grow the marketplace by helping the property and building industry feel more confident about adopting and investing in innovation. We're building a community of bold thinking innovators who share their knowledge and share best practise quality solutions and consistent approaches. So come and join us. Membership is free until the end of 2020. Go to ProptechAssociation.com.au or follow us on LinkedIn.

Kylie Davis: (11:37)

So there's a movement, there's a whole bunch of us oldies ready to cash in our properties. Not me, my husband obviously. So how does it work?

Mark Macduffie: (11:50)

How does it work?

Kylie Davis: (11:52)

How does it work? How do I do that?

Mark Macduffie: (11:53)

So how do you do it? We have a digital platform that has really two sides. One is a consumer facing marketplace that lists properties off the plan properties that are available for sale using this instrument. Think of that as searching on domain, a RealEstate.com, for properties in use your price range, with your criteria. Anybody could interact with that. In that public facing site, we have this eligibility criteria tool that allows you to inquire to see if your existing dwelling or your existing property is of sufficient value for you to purchase the new property off the plan that you choose. We use a suite of APIs and algorithms to basically prove whether or not that looks like you have sufficient equity.

Mark Macduffie: (12:42)

On the other side of the fence, we have a backend that is for developers and real estate agents where they can log in to their own and create their own profile. They can obviously list the stock that they want to sell. Assume that the purchaser has met the criteria, he or she can then purchase the property off the plan with a few clicks of a button and giving sufficient information for us to do credit checks, for example, to see that your house, the house is you own the house and you own it outright, there's no [inaudible 00:13:21], the value of the house is sufficient. We check your ID. As I said, we've got six or seven different APIs that are really brought to bear to streamline this process into one end and allows you to search properties, to see if you're eligible, and then to execute.

Mark Macduffie: (13:36)

We don't do the whole thing end to end into PEXA yet. There's still that bridge of we take it right the way through to the conveyances and the conveyances get the first page of the draught contract. And when that's exchanged, we update our system and the sale is done. The downsizer gets to stay in their existing dwelling until near the time of completion, and we continually update the downsizers to say, "Hey, it's four months from completion. It's three months from completion. You should start thinking about selling your existing dwelling." And we're just trying to make it as easy as possible for the downsizers to just fund their retirement and their equity release rather than how do I fill out bridging finance or how do I get deposit ones or should I sell my shares, should I rent for 12 months whilst the new property is being built?

Mark Macduffie: (14:25)

That's [inaudible 00:14:26] in a nutshell. Does that explain it?

Kylie Davis: (14:28)

Yep, it sure does. No, I love it. So basically in the first instance, so by going on to the website, I can browse a whole pile of properties and then from there, make sure that I can afford to move down based on what my current property is at the moment.

Mark Macduffie: (14:50)

Is, yeah.

Kylie Davis: (14:50)

And what if I still have a little bit outstanding on it?

Mark Macduffie: (14:54)

It's a great question. Thanks for the question. Middle and final product launch, it must be said that we're just about to enter into the commercial part of it. So we're not in market yet.

Kylie Davis: (15:05)

Right.

Mark Macduffie: (15:06)

We're coming and we're coming pretty fast in the first half of this year. The first minimum viable product that we'll launch will only be available to those that wholly own their dwelling and our statistics tell us that that's quite a significant amount of the market anyway. We have designed our platform to allow for quite quickly the future where someone has a residual, maybe they have a 5% mortgage, 10%, 20%, something... that makes it more difficult for us from a platform perspective because then we have to look at where is the title, which bank has title over the property. It just all gets a little bit more complex and then we have to work more closely with the banks that right now we're not working with and almost deliberately at this stage, working with them for the first MVP because we don't think we have to.

Kylie Davis: (15:57)

You've probably got enough complication in your life getting an MVP up in this space, so I just thought [crosstalk 00:16:04]

Mark Macduffie: (16:04)

That's it. Oh yeah.

Kylie Davis: (16:04)

So Mark, how did you come up with the idea? Tell us about your background.

Mark Macduffie: (16:08)

Okay, yeah, my background is I've got 25 plus years of technology, digital design, innovation experience in five different countries. That includes 11 plus years working at Commonwealth Bank leading their digital transformation agenda, if you like, for the institutional and business segment. Very fortunate to work at such an innovative company like Commonwealth Bank, regularly voted number one or two in Australia for innovation. And what that did for me was expose me to some of the best tools, practises, emerging technologies over the more than a decade that I was there.

Mark Macduffie: (16:48)

And I was actually talking with my co-founder now about some of his problems. He's a property developer of 35 plus years, quite boutique, high end, small projects, and 25 to 50 new units, but targeting that high end downsizer market. And he was telling me different stories about having to prove pre-sales numbers to banks in order to drill down in construction finance. But the reality was that the transparency of those sales wasn't really given to the banks. It's just a line item that says, "Mr. And Mrs. Smith are buying this property [inaudible 00:17:24] the time and they've paid a deposit and it's cash." But there's no way of telling whether or not that was backed by it's a first time home owner, which is probably a higher risk, versus somebody that's got a $10 million property in the western suburbs of Sydney that wants to downsize to buy a $5 million property, there's a lot less risk there.

Mark Macduffie: (17:41)

And one of the things we talked about was, and it was in parallel to that, was exactly when the ATO released this downsizer incentive, and what we came up with was this idea that actually there's two problems, two sides of the same marketplace that we can solve with, in my opinion, digital technology and underpinned by a blockchain fabric at the backend, allows us to make an immutable record of these sales that helps us to actually reduce the underwriting and insurance risk required. So yeah, that was over a couple glasses of wine and a couple conversations turned into this idea.

Kylie Davis: (18:19)

It's how that glasses of wine are responsible for an awful lot in proptech I'm quickly learning. So what's the name of your co-founder.

Mark Macduffie: (18:28)

Michael Kelly.

Kylie Davis: (18:28)

Michael Kelly? Hello, Mike. Shout out to Mike. So-

Mark Macduffie: (18:31)

[crosstalk 00:18:31] another co-founder, Damian Morgan, as well. There's three of us involved. I think collectively we're more than 90 years of either property or digital design development.

Kylie Davis: (18:40)

Awesome. That's fantastic. Hello to Damian. So what's the business model behind it? Do I, as a downsizer, have to pay you to use the service or how does it work?

Mark Macduffie: (18:52)

Working principle at the moment, our go to market is we are a B2B where the paying customers are predominantly the developers. So instead of downsizers or purchasers paying for expenses, bridging finance or liquidating assets early, what we've flipped the system to say is that what if the developer paid for the security of a guaranteed settlement amount. Think of it a little bit like buy now, pay later for houses. But what we're doing is doing the due diligence to prove that the purchaser has the wherewithal and the assets unencumbered to pay for this lesser value house.

Mark Macduffie: (19:32)

We charge a subscription model and the listing fees for the developers to list their stock in this way. I must note that we screen those developers to make sure that their projects are suitable for the market that we're trying to attract. We screen those developers for bankruptcy and asset controls outstanding performance over time so that the consumer can buy with a little bit more confidence. We're actually discussing and working with Equifax who are doing the New South Wales' Building Commissioner's implementation of their ratings tool. So we're going to be having that so that the purchasers can, again, buy with confidence.

Mark Macduffie: (20:13)

But from a business model perspective, the developer pays for a subscription and listing fees. And then if successful, they pay for a premium that relates to, that provides that underlying risk mitigation. In case of the property falling and the downsizer walking away, there is an underlying risk that we need to pay for.

Kylie Davis: (20:36)

Yep. So you mentioned before too that as part of the service, you're going to be reminding downsizers that, "Look, your property is going to be completed in about three or four months, so it's time to get your property on the market." So you're going to be obviously a source of leads to real estate agents too, aren't you?

Mark Macduffie: (20:59)

Yes.

Kylie Davis: (21:00)

Are you charging for those leads or how does that work?

Mark Macduffie: (21:02)

Is this being recorded? Oh yes, it is.

Kylie Davis: (21:05)

It is, but we can edit.

Mark Macduffie: (21:07)

Yeah, I'm joking. Out of the box, we will be providing those leads because our eligibility snapshot, if the consumer engages with our platform to see if they're eligible, that obviously generates a lead, a two fold lead: one for the property purchase off the plan and the second one for the existing dwelling, which will come to market when the other one is finished. We'll be giving those two for one away to the agents and the developers. It's likely that over time we'll monetize that and charge a premium. But it opens up all sorts of other interesting business model opportunities, doesn't it?

Kylie Davis: (21:48)

Does it?

Mark Macduffie: (21:48)

Because who owns that introduction? And it's Downsizer, because it's the platform that it's come on. But then that puts the developer puts an interesting negotiating position as well because he or she could then negotiate with the agent a reduced commission or whatever that might be. We're not there yet, but the answer to your question is yes, it creates new leads. We will be giving that away to those agents and developers that relate to that particular property in those instance. But over time, yes, we'll work with our agents to see how we can monetize that. Let's be really honest about it.

Kylie Davis: (22:25)

Awesome, okay. So you mentioned before that you're not live yet or you've got an MVP. When are you launching?

Mark Macduffie: (22:33)

We... I have to say we don't have a date.

Kylie Davis: (22:35)

What day is it?

Mark Macduffie: (22:35)

We don't have a date, I'm afraid. We are hoping to be in commercial pilot by the end of March.

Kylie Davis: (22:42)

Awesome.

Mark Macduffie: (22:42)

And there are two barriers to that. We've been actively speaking to some targeted developers. The response has been really positive. The barriers or the only barrier really to us now is finalising the underlying insurance instrument. We're confident that we'll have that underlying instrument agreed and we'll be in commercial pilot by the end of March, and that pilot will be no more than three months. So we're looking to scale nationally after that.

Kylie Davis: (23:13)

Pretty quick. Okay, awesome. Now you mentioned before something I just wanted to drill down into too, you said the blockchain word. Now, I have yet to hear or... tell me a little bit about why blockchain is working inside your tech because we hear a lot about blockchain.

Mark Macduffie: (23:34)

Yeah, yeah. As I said, in CBA, I was very fortunate enough to be exposed to emerging technology as it was back then and before a lot of other people in the industry. The way that we designed our platform allows, the component sized nature of our platform allows us to have it with or without blockchain. So it's not totally coupled.

Mark Macduffie: (23:57)

At the backend, the reason that we've chosen, in particular we've chosen this specific industry platform by R3... R3 is one of the largest blockchain consortiums internationally. I think it's more than 400 financial institutions now are members of that consortium. The protocols that they use are perfect for what we're trying to do here, which is bilateral kind of agreements. We're using the backed to, when we're scaled, it really comes into it bears fruit because we can integrate with underwriters internationally and insurers internationally, and the insurer could have a completely immutable view behind the scenes of any transaction, any contract, any property, that whole deal, when writing through a blockchain fabric that the insurer or the underwriter will be able to monitor themselves.

Kylie Davis: (24:48)

Well, one of the things that I love about Downsizer is that you do this curating and checking of the developers themselves and you're making sure that we're not talking white shoe brigade here, which is always a great fear every time someone says the word developer, that it's a trusted and safe environment of good quality property stock that you're going to get access to. But the other side of the downsizer market is all of that talk of reverse mortgages and schemes like that that often seem dodgy, how you're not that, what's your response to questions like that?

Mark Macduffie: (25:31)

Having spent 25 plus years in financial services, I've seen a number of different ways... my parents, as well, at one stage were considering reverse mortgages. Personally, I want to choose my words carefully... we're not reverse mortgages. What I don't like about reverse mortgages is at the end of the day, the banks are still making money out of you and your assets at a time where you're probably at your most vulnerable. So if you want to stay in your existing dwelling and with the interest rates being as low as they are right now, maybe reverse mortgages might be the thing for you because you can borrow some money, and let's say you borrow money to do a round the world trip, travel, a bucket list, let's assume COVID's gone or you borrow some money and you want to give your grandkids their deposit for their first house, you're effectively taking another mortgage when you can't afford to pay it off and it just comes out of the value of your house.

Mark Macduffie: (26:29)

And that's first completely up to the consumer to make that decision, but where I feel we're completely different is you get access to your money and you don't pay any interest on it and it's yours. Why should you have to pay any bridging finance? Why should you have to pay anything like that? So we are slightly different. I don't like, personally wouldn't be looking to advocate for a reverse mortgage because the interest charges, they're daily, they're compounded, they're debited and added to your balance, and that might fit your scenario. We're just another option basically, but we feel like we're better obviously, we got to say.

Kylie Davis: (27:02)

Yeah, awesome. So if the concept of sort of Downsizer, you guys are you're building for Australia as your starting point, but obviously this is something that could roll out globally. If it was universally adopted, what does older age and older property ownership look like?

Mark Macduffie: (27:25)

Crystal ball kind of time, I suppose, but this is just my perspective, I feel that [inaudible 00:27:33] just kind of have this ability to be able to drill down on this in an easier way, but flash forward a decade from now, those that are 45, 55 will be more digital savvy, they'll be more accepting of digital solutions to be able to do things that add to their lifestyle and the consumer should drive that control. So I feel that what it means to older age is easy access to their equity at convenience, stay at home until your new property is complete, or a later stage for us will be existing dwellings, but there's no need for that downsizer or purchaser to use bridging finance when they've got sufficient equity in their house and they don't have to pay a financial institution for the privilege of that.

Mark Macduffie: (28:20)

I don't think it limits... the impact of this if successful, when successful isn't just limited to that older segment. For me, releasing that stock, large amount of stock that's being totally held for many, many years has a cascade effect all the way down the value chain, the supply chain of houses. If we can mobilise and release that stock that's been long held, the next trench down and the next trench down and the next trench down, makes it more accessible for first time homeowners and keeps the prices of houses in this kind of more stabilised trajectory rather than three, four years ago, it was just crazy.

Mark Macduffie: (28:58)

Actually, I'm living in Byron Bay at the moment. The property market up here is skyrocketing with all of those people flooding the exodus from metropolitan cities and the local [crosstalk 00:29:09] went postal. So I just think it mobilises and accelerates and makes the whole market, residential market, more fluid.

Commercial: (29:19)

The Proptech Association Australia is proudly supported by our foundation sponsors, Stone & Chalk, the Real Estate Institute of Western Australia, and Macquarie. If you're passionate about proptech and would like your business to take a leading role in the proptech conversation, join us by becoming a sponsor. Drop us a line at hello@ProptechAssociation.com.au.

Kylie Davis: (29:44)

Yeah, it's true, isn't it? The worst thing that could happen to the property market is that it stops transacting and what we have seen over the past, when I was at the Real Estate Institute of New South Wales, we were doing some work on downsizers and looking at the size of the market and what was preventing them from moving, and real estate, your whole life, real estate is one really complicated, so adult... it's such adulting that you have to do when you go out and buy real estate because you have to do all this, do the sums to work out what you can afford, you have to make all these kind of life choices around where you're going to be and all of that sort of stuff, and that's stressful, and you never get a break from that, no matter how old you get.

Kylie Davis: (30:31)

It's hard when you're a first time buyer. It's hard when you're upsizing because you've got kids and schools and all sorts of things to manage in the middle of it. And then when you get older, it's still not easy because you've got to work out how you're going to get the deposit together to do the next thing while you're still living in your property and sorting out your finances at that end. So I love that you're kind of streamlining and at the time of your life when you have actually done the hard yards, got everything paid off, it should actually be easier by that stage. I love that you're actually fulfilling that promise that it should actually start to get easier.

Mark Macduffie: (31:07)

Thank you.

Kylie Davis: (31:08)

So you're building out your MVP, three founders, what does launch day look like? How many properties are we going to see in Downsizer? What's your goals for that?

Mark Macduffie: (31:17)

Okay. I think that's a great question. We're punching above our weight at the moment. There's three of us that are actively employed on this, not full-time right now, but we're working towards that, but we also have a small scrum team with our technology partner and that's helping us with the technology side of things. The MVP's built. It's in beta right now. So we're demoing it actively to targeted developers, as I said, and agents, and we feel confident that we're going to cap the commercial pilot to no more than 200 listings, which doesn't sound like a lot. The reason that we're doing is just to mitigate the risks for the insurer. As soon as that's proven and the paperwork is all shaken down and airtight, we'll scale very quickly.

Mark Macduffie: (32:10)

From our perspective, if you look at this, the number of housing starts or housing construction starts projected over the next two years is significantly less than historically, so we're probably about 100,000 new dwellings per annum down on the peak of 2016, '17, '18, like '16, '17, '18. Our projections there would be new offers to MVP would be 40,000, the market is 40,000 new dwellings that fit the criteria, quickly moving out of that new units into all new dwellings, that's 140,000 for '21, '22 is the projected start rates from the HIE.

Mark Macduffie: (32:58)

And then beyond new dwellings, our third phase, if you like, is any existing dwelling. So if you think about you've got an existing dwelling that you wholly own or mostly wholly own and you want to buy another existing dwelling on a delayed settlement, why should you have to have bridging finance that the bank benefits from? Why can't you use this instrument to say, assuming that the seller agrees to a delayed settlement, why can't you pay for that as a consumer? So that opens up the whole market of 380 odd thousand residential property sales per annum.

Mark Macduffie: (33:34)

That's how we see the Australian market. Quite quickly, we have international plans from the first line of code that's been written, we had international scale in mind. That's why we chose the R3 Corda platform and we're actually, we've now been accepted into the R3 Venture Studio, which gives us access to those 400 financial institutions in all of those global markets. And we've already had initial conversations with an American financial institution that is looking, that sees this problem tenfold in the US.

Mark Macduffie: (34:11)

So from a Downsizer perspective? Yes, we'll start in Australia. We'll start very deliberately with high end large developers in Sydney, Melbourne, Brisbane, Gold Coast. Once we've proven that in the first commercial pilot, we'll quickly pull the plaster off and go as quick as we can.

Kylie Davis: (34:33)

Awesome, okay. So if real estate agents or developers, are you looking still for connections who might want to be part of the Downsizer ecosystem?

Mark Macduffie: (34:46)

Absolutely. We're always interested in hearing from people in the ecosystem. And yeah, by all means, we're looking for anyone that's interested that is either a property developer or a real estate sales in residential projects. We'd love to hear from them. Even if we don't include you in the commercial pilot, but we obviously will be scaling pretty quickly. I just love catching up with everybody and hearing their side of this story. I have to say the feedback has been fantastic in the small amount of time we've been, we've only been actually publicly talking to people for the last six weeks or something like that, and we've covered a lot of ground and the feedback is unanimous. We stopped talking to developers, but I'm more than happy for anybody to proactively reach out to us, and the only reason we stopped is that we feel like we've got a clarity on exactly what we need to do to launch and we're working hard on that.

Kylie Davis: (35:44)

Awesome. We'll include your contact details in the show notes if that's okay and people can reach out to you from there. So Mark, what do you think the next five years holds for the real estate industry and for downsizing and property investing or property grow?

Mark Macduffie: (36:00)

A big question.

Kylie Davis: (36:03)

Yeah, crucible. That's all right. We won't be going back in five years time and saying, "Oh, he got it wrong."

Mark Macduffie: (36:11)

Yeah.

Kylie Davis: (36:13)

Maybe we will. Maybe that'd make a great show.

Mark Macduffie: (36:15)

Well, with COVID hitting every aspect of daily life globally, that puts a big spanner in the works. If you follow the economists, none of them really know. So from my perspective, generally I feel like Australia's housing market has really held up strongly to the last nine or 12 months of the COVID pandemic and surprisingly to some people, and I'd have to say I've been even a little surprised at how strong it's been, but I am worried about what the next 12 to 18 months looks like. I think that's going to be critical for the longterm sustainability of what residential projects look like and what residential property forecasts look like.

Mark Macduffie: (37:01)

But there's so many moving parts there that you've got less net migration impacting on the demand for Australia. When Australia opens up again, I dare say, certainly a lot of the people I speak to in the UK and Ireland and Scotland, where I'm from, and Europe, where I worked, they all want to come down to Australia. When the border opens up and if Australia is still doing as well as it is comparatively, then I would see a huge increase in that net migration to way beyond what it used to be as well because people will leave the US, people will leave the UK, people will want to change and they'll come down here.

Mark Macduffie: (37:41)

And then if you think of it, just Australia as it stands now with COVID, huge amount of migration away from the metropolitan areas because technology allows us to work anywhere. I'm one of those people. I left Sydney four years ago to self-isolate before it was cool. Basically, my wife and I couldn't afford to buy in the area we wanted to in Australia and I was fortunate enough to have an employer that would allow me to work remotely and fly in every two weeks. That has become the norm. So that has a huge impact on residential property prices.

Mark Macduffie: (38:20)

But for me, commercial real estate looks like it's in for a seismic shift. Again, with people working remotely, you can no longer have open plan offices. There's billion dollar buildings down in the heart of Sydney that are being constructed as headquarters for global businesses or large banks that they have to completely redesign and rethink. What does that mean? I don't know. But one thing I have seen in COVID is this, like many industries, necessity is the mother of invention and I feel like there's been a really quick mobilisation of digital savvy real estate agents and developers that are now doing virtual reality tools and fully digital tools and buying in fully digital auctions. It really shifts the paradigm and accelerates into nine months, which would have probably taken two or three years.

Mark Macduffie: (39:14)

And that's been really exciting to see the adoption of those initial tools even like when I tried to do Zoom meetings before COVID, people would say, "No, can you come to my office in [inaudible 00:39:24]." And I'm like, "Hang on, I'm in Byron Bay." So everyone's happy doing Zoom, and that's a small thing, but it makes the next wave of technology that we haven't even invented yet, in two or three years, those next sets of tools will be adopted more easily because the real estate industry, developers, agents, conveyances, they would have all been exposed to more digital tools. So I can only see that digital is going to help, technology is going to help. But I just hope we get through this pandemic in no worse a position than we currently are now.

Kylie Davis: (39:54)

Yeah, I was having a chat to Tim Lawless just before Christmas from CoreLogic and it's so interesting isn't it because Australia has always had a deficit in terms of building enough property for demand. Even those peak periods that you talked about before of when we were building more new property than ever before, there was still not enough going up to oversupply the market, except in some kind of suburbs here or there that council wouldn't be crazy on.

Kylie Davis: (40:25)

So it's going to be really interesting to see the dearth of immigration, the developers have pulled right back and aren't building as much. So is that going to kind of correct that imbalance? But the imbalance is still, there's probably not enough being built still to oversupply the market, and then when the borders do open again and we're all vaccinated and everyone's happy to travel, I'm... go like shit off a shovel as my dad would say, which is completely inappropriate. So I apologise, but my dad just popped into my head.

Mark Macduffie: (41:02)

[crosstalk 00:41:02] your podcast, which is entertaining. Yeah, I hope. But the net position is probably no different to the way it was and we still don't have enough to meet demand. And I feel like the geography will change maybe in somebody's mindset or in people's mindsets. I've certainly seen some beautiful residential property developments up here, near here anyway in southeast Queensland and in Brisbane that are attracting that downsizer market. And this is a podcast about Downsizer, if you like, so I'm blatantly going to plug if we can help accelerate some of that, unlocking some of that demand from a different segment or exposing it to more of that segment, make it easier, then developers will have new people to buy from.

Mark Macduffie: (41:49)

And [inaudible 00:41:51] the risk of selling to first time homeowners. One of the things that started this year, COVID has certainly had a huge impact on residential off the plan sales. In the first three months, I think the statistic was that in one in 10 off the plan sales fell through in metropolitan Sydney and Melbourne.

Kylie Davis: (42:10)

Wow.

Mark Macduffie: (42:10)

And that meant, nobody wins in this equation, but $87 million of deposits alone were given up by buyers.

Kylie Davis: (42:22)

Wow.

Mark Macduffie: (42:23)

So just think about that. That is probably first time homeowners, [inaudible 00:42:26] years to get a deposit to buy off the plan, then basically as it gets 90 days out from settlement, the banks get the right to revaluate, revalue the property, and revalidate the serviceability. And in the middle of that COVID pandemic, Sydney and Melbourne dropped a little bit and as a result, all these settlements fell through. So you've got developers for more than 3,000 units fell through.

Kylie Davis: (42:52)

Wow.

Mark Macduffie: (42:53)

So you've got developers of the product that have been revalued by the banks that are now worth less than the contract value when they started, but they have to resell for a loss or hold them. Then you've got potentially this raft of first time homeowners who've lost their deposit.

Kylie Davis: (43:07)

Yeah, no, that's terrible. That's terrible. Congratulations and good luck with the launch in March, Mark. I love this idea that Downsizer is helping unlock the extraordinary wealth that a proportion of the market have developed through property and letting them take the next step really easily so that we can hopefully see more availability of existing stock come on to the market while better stock is getting built that fits the purpose for people moving into that stage of their life.

Kylie Davis: (43:44)

I love too that you're using real blockchain. It's not a gimmick. It's genuine proven blockchain from the financial services industry that is robust and doing that job there. And I love too that, as we go forward, that you're probably going to be helping unlock more regional areas who are lifestyle destinations both for downsizers, sea changers, tree changers, and developers in that space as well. So I love the idea that Australia is not just going to become about Melbourne, Sydney, Brisbane.

Mark Macduffie: (44:19)

Yeah, completely. We are talking to someone up in northern New South Wales that land and title package. Great, cool. If it sold, if those two things are sold at settlement, then you can use Downsizer to do that as well. That's not in our MVP, but it's very quickly after that because we're just going to see this explosion of, I think, new construction, small town houses, developments that are in these coastal areas that people want to migrate to.

Kylie Davis: (44:46)

Absolutely. So the next five years for you guys is going to be this first half of this year, get your MVP done and out the door, dominate Australia, UK, US, global dominance.

Mark Macduffie: (44:58)

Well, that sounds big, doesn't it. [crosstalk 00:45:00]

Kylie Davis: (45:00)

No pressure. No pressure.

Mark Macduffie: (45:02)

But we definitely have this, as I said, we have an aspiration to make the impact here in Australia through the technology, and because of the technology and how we've constructed, we'll be able to go into other jurisdictions very quickly. Basically, the pattern that will attract us and we've identified the countries we'd go to next would be mature land title registries, similar legal patterns, digital savviness if you'd like or digital maturity, that 20 plus years of residential property growth, and the ageing population.

Mark Macduffie: (45:39)

So for us, the roadmap would probably be, as I said we're already talking to, had initial conversations with an American entity, which excites us, America, UK, Singapore, and New Zealand obviously would be on the cards quite quickly. Canada also fits that mould. Even if we just finish on the American thing, they're reframing that issue, that the banks and the research papers and the economists in America are saying, "Dear baby boomers, you've had substantial growth. Your properties are now worth more than they've ever done. But there's going to be an over supply issue quite quickly."

Mark Macduffie: (46:17)

So they're encouraging people in this downsizer segment to cash in now because they feel that there'll be an oversupply because the demographic, the research there is saying that millennials and Gen Xers and the next generations will never be able to have jobs that will allow them to afford those big houses.

Kylie Davis: (46:36)

Wow.

Mark Macduffie: (46:36)

So the large financial institutions in the US are saying, "Downsize. Downsize now."

Kylie Davis: (46:40)

Get out!

Mark Macduffie: (46:43)

[crosstalk 00:46:43] "Get out and allow us to invest your equity for you." So they're seeing it as a wealth management opportunity.

Kylie Davis: (46:47)

Okay, interesting. Very interesting. Well look Mark, it's been absolutely awesome talking to you today. Thank you for being my first interview for 2021 and good luck with the launch of Downsizer.

Mark Macduffie: (46:58)

Thank you so much for the invite, Kylie. Thank you so much to all your listeners as well. If anybody wants to reach out, there'll be contact details here I'm sure, but I'm not difficult to find.

Kylie Davis: (47:06)

Okay.

Mark Macduffie: (47:09)

[crosstalk 00:47:09] to go.

Kylie Davis: (47:09)

Awesome. Thanks, Mark.

Kylie Davis: (47:12)

That was Mark Macduffie, one of the three founders of Downsizer.com, a new proptech launching in March that makes it easier for downsizers to assess and coordinate the steps required to purchase a new property off the plan while also helping developers demonstrate buyer quality supporting their builds.

Kylie Davis: (47:30)

I think this is a really elegant solution to what's previously been an invisible problem. Until now, downsizers have been on their own finding new properties, organising their finances to purchase off the plan, coordinating the sale of their existing home, and managing the challenging timeline that going down such a route puts in place. And there's been cost to this. Mainly that people feel it's just too hard and it's easier to stay where you are. And this has a real societal cost to us. It locks up significant proportions of the property market leaving people in homes that are often too big for them and require an additional expense to manage. And at the same time, it makes it harder for young families to move up into something more suitable because of a lack of supply on the market and the higher than necessary cost of what's available caused by such a shortfall.

Kylie Davis: (48:19)

So I think it's a great example of tech solving deeper problems that we didn't know that we had, but which once they're highlighted, it makes you unable to see things in the same way that you did as before. And I love that Downsizer is using blockchain technology in a way that makes complete sense. They're securely encrypting that really valuable financial data as it moves between the Downsizer platform, the developer, and the banks of each party. So well done, Mark and the team at Downsizer, and very best of luck for your launch in March.

Kylie Davis: (48:50)

Now, if you have enjoyed this episode of the Proptech podcast, we would love you to tell your friends or drop me a line either via email, LinkedIn or on our new Facebook page, which you can find at Kylie Davis Proptech. You can follow this podcast on Spotify, Google Podcasts, Apple iTunes, and Anchor, and where all good podcasts are heard. And I'd really love it if you could subscribe and/or leave a review.

Kylie Davis: (49:15)

I'd like to thank my audio support, Charlie Hollands and the very fabulous Jill Escodaro and our sponsors Direct Connect, making moving easy, Smidge, official wines of the proptech community, and HomePrezzo, now part of ActivePipe, and making marketing automation easier than even before. And if you're interested in being a sponsor on the podcast, please drop me a line.

Kylie Davis: (49:36)

If you are a proptech, make sure you join the Proptech Association of Australia and join like minded tech people who are passionate about the property industry and committed to improving experiences in how we buy, sell, rent, manage, build, and finance property. You could even find yourself on the podcast. Go to ProptechAssociation.com.au. Thanks everyone. Happy new year again. Until next week, keep on propteching.