ASIC has warned the real estate agents advising SMSF property investment must be licensed.

ASIC has warned the real estate industry that agents recommending investors use a self-managed superannuation fund (SMSF) to invest in property must ensure they are appropriately licensed to provide the advice.

ASIC is working with the Real Estate Institute of Australia (REIA) to ensure that real estate agents understand their legal obligations.

ASIC has written to the REIA, the state and territory real estate institutes and property investment associations (real estate bodies), setting out ASIC’s concerns and asking the real estate bodies to communicate these to its members.

ASIC is concerned that with the increased popularity of SMSFs and property investment, real estate agents may not realise they are providing financial product advice and need an Australian financial services (AFS) licence when making recommendations or statements of opinion to a person to use an SMSF to invest in property. If providing this advice, agents must ensure they comply with legal obligations under the Corporations Act 2001.

ASIC’s letters to the REIA and the real estate bodies warn that:

• If a person does not hold an AFS licence or is not authorised by an AFS licensee, they can only provide factual information to consumers in relation to SMSFs.
• Where an AFS licence is required, real estate agents must immediately cease offering and providing financial services or advertising the provision of financial services until such time as an AFS licence is obtained or they become a representative of an AFS licence holder.
• A person convicted of carrying on an unlicensed financial services business may be subject to a fine of up to $34,000 or imprisonment for 2 years or both. If a company is convicted it may also be liable to penalties, including a fine of up to $170,000.

ASIC Commissioner Greg Tanzer said ASIC’s role in relation to SMSFs is to regulate the gatekeepers – the advice providers, SMSF auditors, and providers of products and services to SMSFs.

‘We want to ensure the SMSF sector remains healthy and vibrant so investors can be confident that, if they are receiving advice about investing through an SMSF, their adviser holds an Australian financial services licence and is aware of its obligations’, Mr Tanzer said.

ASIC is aware some real estate agents are offering commissions or benefits to financial advisers for recommending that investors use an SMSF to purchase the real estate agents’ properties. Such commissions or benefits may be conflicted remuneration and financial advisers may be banned from receiving them under the Future of Financial Advice (FOFA) reforms. This is because the commissions or benefits could reasonably be expected to influence the financial product advice given to retail clients.

Click here to read content of ASIC’s letter to the REIA.

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Bendigo and Adelaide Bank’s Executive Retail, Dennis Bice, said the report shows there has been growth across a number of market sectors.

“The results underscore the old property adage that there really are ‘markets within markets’ both at different levels in different cities and in regional centres around the states and territories where good value and solid returns can still be found,” Mr Bice said.

The report also revealed an increase in the number of loans to first home buyers, which increased by 5.9 per cent to 25, 101 over the June quarter 2012, up from the June quarter of the previous year by 11.8 per cent.  

“People have been putting the big decisions, such as upsizing or downsizing their housing preferences on hold for some time now but there is evidence to suggest that activity in the property market is beginning to build again, said Mr Bice.  

“Investors are also seeing strong demand for rentals in the major centres with tight vacancy rates.

“The positive impact this has on rental returns, coupled with lower borrowing costs, should see a more active spring real estate season,” he said. 

“The report also finds that around Australia, residential investment property returns for three bedroom houses and two bedroom ‘other dwellings’, such as apartments and townhouses  show an average annual return over the past five and 10 year periods in the range of 6.6 per cent to 16.2 per cent*,” Mr Bice concluded. 

To read the full report, click here.

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