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Syndication can catch the unwary

AUSTRALIANS like investing in property and the rapid growth of investment in property syndicates has allowed small investors a piece of the top end of town.

Prime retail and commercial buildings all over Australia are now owned by property syndicates

It’s estimated property syndication now represents more than $5 billion in assets Australia wide, with more than 80,000 investors.

While property syndication is looking like a booming long-term market, there are some clouds on the horizon for unwary investors.

A lack of high-quality product and variation in the risk profile of syndicated properties are triggering alarm bells for some investors, analysts and established syndication operations.

The rapid growth of investment in property syndicates has been driven by a number of factors.

Concern about global security following September 11 coup-

led with the dot.com crash in

2000 fuelled a flight to property investment and its perceived stability.

Australia’s ageing population is also looking to the future and seeking solid performing investments to provide security and income in their retirement.

The property syndicate sector of the market hasn’t always sported such a bullish profile, however.

Syndicates are similar to the unlisted property trusts, which suffered a major downturn in 1990 when an oversupplied market resulted in a reversal, with investors rushing to get their money out.

The unlisted property trust promoters couldn’t sell properties fast enough to meet redemptions and, in the end, the authorities imposed a moratorium on payouts.

The most important difference in the current market is the level of regulation that operators are forced to comply with.

The property market slump in the early 1990s drove the development of regulation in managed investments.

The collapse of the unlisted property trusts triggered some alarm bells for what was then called the National Companies and Securities Commission.

The Managed Investments Act, passed in 1998, delivered new requirements for pooled fund investments.

The proponents of the property syndicates fall under the jurisdiction of the Financial Services Act, which has undergone a major overhaul through the financial services reform act this year.

Dick Lester worked for Growth Equity Mutual, one of the unlisted property trusts operating out of Perth.

“There are some similarities between the unlisted property trusts and the property syndicates,” Mr Lester said. “Frankly, they are the modern property trusts.”

When the major property trusts suspended trade around Australia, Growth Equity Mutual worked hard to market the quality of its portfolio.

“We had had a period of 10 years of positive market perception,” Mr Lester said. “We ourselves had come to the view that property never went down. This was a salient lesson for the property market.”

Mr Lester maintains that property syndicates, while not for everyone, offer interesting opportunities for investors, as long as the level of quality is maintained across a company’s portfolio.

“The regulations have changed and they’ve got the wisdom of hindsight, but then we also went out and marketed the quality of our portfolio,” he said.

The limit of such regulation is that it is largely self-regulatory, although severe penalties apply if breeches of the act are uncovered by ASIC.

In the end, like any other type of investment, property syndicates require careful examination in relation to the growth and income potential of each property, Mr Lester said.

In Perth the major syndication groups include Glenmont Properties, which has undergone impressive growth in its short history.

Founded by Multiplex Constructions, Hawaiian Management and Charnaud Rayner, Acumen Capital is another major player in the local market. Acumen Capital’s portfolio includes 186 St Georges Terrace and the Port Hedland Shopping Centre.

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