FMA rules tighten on property syndicates

Up to 400 property syndicators with investor funds worth $2 billion will have to reveal more information under new rules.

From October 1, they must issue a prospectus, investment statement and appoint a statutory supervisor, the Financial Markets Authority said yesterday.

Up until now, they have operated under Securities Act exemptions demanding fewer documents, but the authority said the schemes generated a significant number of complaints from investors so the rules had to get tougher.

Finance company collapses sparked a big syndication drive, as investors were drawn to big returns, often double bank interest rates.

Sue Brown, the authority's head of primary regulatory operations, warned of "significant risks" around the syndicators who operated property proportionate ownership schemes.

"These changes will provide investors with the information they need to make informed decisions before investing in these schemes," she said.

Inadequate governance, deficient management and poor disclosure were at the root of many problems.

High-profile failures of syndicates in the early 2000s appeared to have sparked a decline in the sector but syndicators were now active again and appeared to be growing, she said.

The investing public sought the apparent familiarity of real estate "but without necessarily appreciating the full implications of investing in these financial products", she said.

"We expect that trend to continue, for example as the redevelopment of Christchurch gets under way and the demand for property development monies increases."

Oyster Group says syndication offers people the opportunity to own real estate without the day-to-day hassles of property management.