DIRECT property fund managers need to devote more resources to educate new investors who might have been spooked by the recent collapses involving mezzanine funds.
At the annual Australian Direct Property Investment Association conference yesterday, president Linden Toll urged the industry to become more involved in lobbying and education to avoid further losses for investors.
Toll said in the past 12 months, Australian investors have lost around $1 billion on unsecured mezzanine funds, often marketed as property investments.
“Unfortunately these sad losses to the mostly vulnerable at home investors or those poorly advised leave us with a responsibility that we must now address – education. It is our responsibility as an association dealing with more than $20 billion of 250,000 Australians hard earned investment and superannuation money, to ensure that all with a dollar to invest do so fully equipped to do so rationally, thoughtfully, and with due consideration of advice.
“We need to differentiate between solid bricks and mortar property investments and those lending style propositions loosely described as property and reiterate our desire to see diversification not only of asset class but within asset class,” he added.
In addition, Toll said investors had been lulled into a false sense of security, given the strong returns of most investment markets over the past number of years.
“The losses experienced recently should remind everyone that they need to consider risk.
“Investment markets have – by and large – been extremely kind to investors in the last few years. Australian’s love of property has continued,”
“Equity markets were producing returns of 20% plus per annum. Times were good and – with memories being short- almost all asset classes became popular, and anyone with a bright idea could run a hedge fund of set up a fixed income investment fund
“But as many are realising we forgot one important factor – Risk. It seems that despite what we learnt about markets in the 1980’s, we fell again into the comfortable trap of high returns without considering what risks might lie ahead,” he added.
Toll’s views were echoed through a panel of industry experts who said investors also need to be realistic about long-term returns.
The panel were concerned investors will react poorly to any slowing of returns after years of strong growth and they offered a view that inflated asset prices and the cost of implementing environmental measures could drive lower returns in the next 10 years.
The panel, which included Austcorp Funds Management’s general manager Andrew Meakin, Herron Todd and White’s chief executive Brendan Hulcombe, Grange Securities economist Stephen Roberts and ING Superannuation Strategy Manager Graeme Colley, also discussed short-term shocks that could impact returns, including a slowing of growth in
Meakin said asset prices are overvalued and in the world of property that means rents will go up.
The panel also said costs are set to rise with an aging population, growing infrastructure requirements, which could cause a blow out in government deficits. One estimate was for Federal budget deficits to run at between $12 billion and $14 billion within the next seven to 10 years.
While the costs of implementing environmentally friendly measures, the panel heard that it would create new asset classes, including carbon trading, which will offer opportunities.
Hulcombe said a major issue looming for the property industry is a potential for a regulatory framework change allowing the use of superannuation in residential property to improve housing affordability.
“There will be pressure to put some of that money (superannuation) into residential units,” he said. “It’s just a matter of time.”
Australian Property Journal
