ONE of Australia’s leading litigators has warned that property schemes promising up to 25 per cent returns for investors could be the next Storm Financial if their assurances are not adequately secured.
Stewart Levitt of Sydney-based law firm Levitt Robinson Solicitors, who has recovered more than $100 million in compensation for consumers in cases arising out of the Storm Financial collapse, said the elements of falling mortgage costs and rising property prices were the foundations of a perfect storm for future potential investor losses.
“Cheap and easily accessible money very often leads to speculative investment choices which over time leads to severe losses“, Mr Levitt said.
The Australian Financial Review reported last week that the Reserve Bank of Australia had flagged potential problems being created by a volatile mix of cheap money and inflated expectations about returns from property investments.
“The RBA said last week that it will be working closely with ASIC and other Federal and State regulators to assess and contain economic risks that may arise from the housing market,” the AFR reported.
Property spruikers are targeting self-managed super fund investors to invest in property investments with returns of up to 25 per cent – more than 10 times the RBA cash rate.
Mr Levitt said that the role of the regulator was not to sit back and let and let the market explode and then determine what went wrong and do a report about it, but rather to anticipate where things are likely to go wrong and take appropriate steps to protect consumers.
“Promises of high returns on investments. Banks lending cheap money to facilitate such investments. We have seen this all before and we know where it leads,” Mr Levitt said.
“That is why our regulators should learn the lessons of history otherwise we are destined to repeat the mistakes of the past and I don’t think the mum and dad investors of Australia can take another loss like Storm.”
The AFR also reported that some property developers are offering “sophisticated investors” a 25-per cent return for 19-month terms – equivalent to 16 per cent a year – for membership of syndicated apartment developments in and around Sydney.