ASIC has released a consultation paper that outlines proposals to improve disclosure for investors who are considering investing in unlisted property schemes.
The proposals follow a review by the corporate regulator of disclosure documents issued by responsible entities (RE) in the $28 billion unlisted retail property sector.
ASIC found a number of key disclosures were not adequately addressed, including the risks associated with the borrowing maturity profile and the extent of hedging.
It also found inadequate disclosure on the details about property development activities, the basis of valuations and the risks associated with 'as if complete' valuations, and reasons for distributions being made from sources other than income and the sustainability of these distributions over the next 12 months.
Investors' withdrawal rights and the risks associated with withdrawal arrangements were also not clearly promoted to investors.
ASIC has proposed a series of benchmarks against which REs will have to measure their disclosure. They will come into force on 1 July 2012.
"One of our business priorities focuses on promoting confident and informed investors and financial consumers," ASIC chairman Greg Medcraft said.
"These proposals are aimed at improving the level, comparability and consistency of disclosure provided to retail investors by extending our 'if not, why not' benchmark disclosure model to unlisted property schemes."
Property Funds Association (PFA) board member Hamish Bowman said in reaction to the publication of the paper: "It is a step in the right direction."
Bowman, who is also chief executive of Salvest Capital, said the proposed legislation came at a good time, because funds were beginning to trickle back into the unlisted property sector and the new rules would help in raising investor confidence.
"Investors were the ones that carried the financial burden, to a large extent, throughout the global financial crisis and that was because there weren't many hurdles," Bowman said.
"Now, it is going to put the onus back on managers to substantiate, to another level, the investment that investors buy into."
He said the PFA was planning to make a submission to ASIC about the paper.
