Regulating Investment

In Australia regulatory frameworks have been established in most industries to protect investors from misleading and deceptive conduct.

In addition to protecting investors, many industry bodies aim to educate investors about their rights and safe purchasing practices. However, there are no regulations that prevent investors from making poor decisions, particularly when it comes to property investing.

The onus of assessing the investment viability of a property is the responsibility of the purchaser. Unfortunately, investors’ assessments are often influenced by their trusted accountants and financial planners’ advice, which doesn’t take into consideration the fundamentals of property investing, and which may be influenced by a commission for referring the purchaser. This, together with marketing campaigns promoting such benefits as low funding differentials, see many investors purchase assets unsuited to their particular circumstances and investment goals, which simply means the asset will not perform.

Off-the-plan apartments are increasingly popular with many novice investors due to the lure of tax benefits, stamp duty savings and low deposit requirements. But unbeknown to many buyers these perceived ‘benefits’ are often used to disguise the limited investment potential of an asset to achieve growth, the downfalls of which aren’t readily evident at the time of purchase.

The combination of misleading marketing and a lack of knowledge, understanding and independent property advice means thousands of buyers are caught out by poor property investment decisions every year; decisions that can affect them into retirement.

Fortunately, some avoid financial disaster through prudent and responsible lending practices employed by certain lenders who endeavour to protect investors from high-risk property investment choices. However, this is by no means a failsafe method of assessing the viability of an investment property.

At present, there is no way for investors to compare and contrast the diverse range of property investment options that best complement their financial goals. This remains the task of an independent team of qualified advisers including an accountant, financial planner and property adviser; each with the skill and expertise to ensure investors put their money into the best possible assets.

I envisage the future will give rise to greater regulation in this space, requiring investors to obtain independent advice prior to making significant financial decisions, particularly when it comes to investing with superannuation.

Homebuyers and investors alike need to become wiser about the long-term implications of their investment decisions and not be fooled by persuasive marketing campaigns. For now, the smartest money a property investor will spend is investing in expert advice on the market and the selection of quality assets.