How bonds are managed

17 Feb 2020

In this episode we take a look at how bond money is managed at the RTA and where your bond money goes once it is lodged. Our expert from the RTA is Eric Stow, Financial Controller.


Host: Belinda Heit – Communication and Education – RTA
Guest: Eric Stowe – Financial controller – Finance

Host: Welcome to the Talking Tenancies podcast brought to you by the Residential Tenancies Authority, I'm your host Belinda Heit. Join me as we explore everything you need to know about renting in Queensland with experts from the RTA and industry. We're here to help make renting work for everyone.

In this episode we take a look at how bond money is managed at the RTA and where your bond money goes once it's lodged. Today's expert from the RTA is Eric Stowe, our financial controller in our finance area, welcome Eric.

Guest: Well, thank you.

(Note - These responses are based on the time of recording. From July 2022, the Queensland Government is providing the RTA with a grant to fund our operations. Rather than being invested to earn interest, bond monies received from customers are now held in an operating bank account that is not subject to fluctuations in global financial markets.)

Host: Can you tell us about your role at the RTA and what you're responsible for?

Guest: OK, in my role as Financial Controller I manage the Finance team and the Finance team's major functions are looking after the investments for the RTA and also the accounting for the expenses and other aspects of the financial services role.

Host: Yeah, you're a really important guy to know around here. Now, it's a common misconception that the RTA is funded by taxpayers money. This isn't true. How is it funded?

Guest: Well, the RTA is a self-funded statutory authority, which means we fund ourselves and we received no state government funding from taxpayers money. So, the way we're funded is we invest the bonds that we receive. So those bonds we invest with the Queensland Investment Corporation, they invest in different funds on our behalf and their returns on those funds is what we use to run our operations

Host: So, what are the challenges we face with our funding model?

Guest: Well, some of the major challenges we face, as with any investment portfolio, is potentially poor returns. So, in an instance where the market does have a poor year, the RTA will have lower revenue and then potentially have a deficit for the year.

So, the RTA then has to invest in the lowest possible risk assets, which means that we have to invest in things like products that pay interest rates, interest rates style returns, and given that we're in a period of record low interest rates, that means there is a lot of pressure on RTA’s revenue.

So, what that does for the RTA is encourage us to try and be as efficient as possible and reduce our costs where possible. So, the things we're doing in that space is to try and introduce more self-service things like the web services program and also streamlining other internal processes to minimise costs until such time that we can come back to a position of surplus.

Host: Yeah, so just touching on the web services project there, so that's minimising a lot of the printing that we do, which was at a significant cost and it's also giving efficiencies to the industry because they can do everything online, so yeah.

Guest: Yeah, that's right, so it should save the RTA's costs and also, as you say, the industries cost as well with time, paper, filling out, postage costs on both sides and printing.

Host: Yeah. So, when a bond is lodged with the RTA as a security deposit at the start of a tenancy, where does that money go?

Guest: OK initially, once the money is received at the RTA's bank accounts, we usually transfer it into a secondary bank account which is held with the QLD Treasury Corporation (QTC) who provide banking style services to the RTA but pay out at a higher interest rate than normal banks would.

Once that the money is held there with QTC for a period of time, we've now in a position where we can invest with the QIC products and then make that investment. So those investments are based on targets which are set by the RTA board and approved by QLD Treasury. So, when those funds are available and those investment targets are there to be meant, we'll make that investment, that's all.



Host: Yeah, so just out of interest, how many bonds are lodged with the RTA on an average year?

Guest: Last year, for an example, we had 267,000 bonds lodged over the course of the year with a total at the end of the year of 621,000 bonds.

Host: That's a lot of bonds.

Guest: It is a lot of bonds and overall that value of the bonds as at 30 June 2019 was $897 million, which works out to an average bond value of about $1400 each.

Host: Yeah, which is, you know, standard kind of rent value. So, what happens with unclaimed bond money then?

Guest: Unclaimed bond money is interesting. So, what happens when a claim is put in to refund a bond is the RTA attempts to send that money back. Prior to 2016 that would have been sent by cheque. Now we do everything via EFT and if that cheque was never presented or if the money that we've tried to send through to the bank is returned then we'll try and e-mail or contact the customers to get updated details, but if it's not refunded, we just hold on to that money until such time that we can contact the customer and refund the money.

Host: Yeah, so I guess that change in technology again is there for us going to the EFT. So, we'd probably see a big change of a lot of cheques floating out there in the ether.

Guest: That's right, we would expect a lot of unclaimed bonds to decrease compared to what they were historically. Also, with the ability to use the web services to provide refunds there should be less of a chance of insufficient bank details because it is a requirement to enter those bank details on web services, so I would expect those unclaimed monies to decrease.

Host: Absolutely, because people are taking responsibility for themselves and they want that money, right? Is there a lot of variation on the amount of bonds and their value that's lodged with the RTA each year? Does it change much?

Guest: It does fluctuate year to year, especially the new bonds that are lodged. Generally, over a 10-year period, which we see an average increase of about 1% per year, but that can be as high as 4% increase or as low as - 2% decrease, which is what we experienced last year.

The value of the bonds, however, is steadily increasing because that's generally in line, not just with the number of bonds, but also the increases in rent that we're facing through the market. So over that same period of time, we saw the bond value increase by about 6%. And that's also helped by the fact that bond incremental increases are paid when the rent increases.

Host: Yeah, and there'd be a little bit of CPI increase in there as well, wouldn't there?

Guest: That's correct, yeah.

Host: Bond refunds would also balance out those figures too, wouldn't they? So as bonds come in, refunds would also be going out to balance things.

Guest: Yeah, that's right. So obviously we didn't increase if we were holding $600,000 total bond, we didn't have a full increase of $260,000 in that one year. So overall out of that 267,000 approximately 252,000 bonds were refunded, in guess a net increase in bonds of just under 15,000.

Host: Yeah, obviously since 2009 we've seen a little bit of an increase each year?

Guest: Yes, that's right. So, the number of bonds is increasing each year by around 4%.

Host: Excellent, well, I'll tell you what Eric I know a lot more about bonds now and how we manage finance here at the RTA. Thank you so much for being our guest today and keeping us informed on finance.

Guest: No worries at all. Thanks very much.

Host: If you want to find out more, visit our website and you'll find all the details in our annual report

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Original publication on 17 Feb 2020
Last updated on 17 Jan 2023

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