More regulation likely for proportionate schemes

The Financial Markets Authority has signalled its intention to overhaul the class exemption notice for the schemes, which are currently more lightly regulated than formal property syndicates.

The current exemption expires on September 30.

Under the proposed changes, all issuers would be required to register a prospectus and investment statement, and appoint a statutory supervisor. The FMA intends to issue guidance to assist market participants with the disclosure requirements of the prospectus and investment statement as they relate to these schemes.

“There are significant risks particular to real property proportionate ownership schemes that need to be better understood,” said FMA Head of Primary Regulatory Operations Sue Brown. “These changes will provide investors with the information they need to make informed decisions before investing in these schemes.”

The changes would come into effect in October. Submissions close on September 24.

Schiele said his firm would work with whatever regulations were introduced.  “We can see a benefit in making sure the industry and those in it are perceived as reputable.”

Recent high-profile investment opportunities such as the proportionate sale of the ASB building in central Auckland had raised interest in the investment vehicle, despite a rough run in the 2000s.

Schiele said he expected proportionate ownership schemes to continue to be popular.

He said it had been particularly appealing to investors over the past couple of years. “With interest rates low, the desire from investors is to look at high-yielding propositions. Direct property is one of those that many perceive as providing high yield and also a degree of safety.”

He said the proposed changes would have an impact.

“Additional regulation puts time and cost into any new offering we take to investors.”