What risks?

I thought property was as safe as houses. There's no doubt many investors regard property as a safer bet than assets such as shares or listed property trusts that are traded on the stockmarket. But even though the value of unlisted property funds doesn't fluctuate from day to day, it is subject to the same trends that drive listed property investments. The only difference is that while listed investments are valued constantly by investors, the assets in unlisted investments may be valued only every two or three years, so market trends can take longer to show up in the value of your investment.

The credit crunch, economic uncertainty and falling property values will have an impact on unlisted property investments, which is why the Australian Securities and Investments Commission wants to improve the information these funds provide to investors. The regulator says the debt and equity market turbulence since 2007 has left retail investors exposed to increased risks which should be better communicated. Unlisted property investors may need to negotiate debt rollovers or extend existing debt facilities, which is more difficult in the current environment without paying higher interest rates or reducing debt. Some funds may have to sell properties, which could put pressure on property values.

The regulator analysed 300 unlisted property schemes managing about $32 billion and found listed schemes were more likely to disclose important information to investors and keep them updated on how the global financial strife was affecting the investments. It released a draft regulatory guide and consultation paper proposing new disclosure standards to be in place by October 31.

So what do I need to know?

The commission has identified eight disclosure principles, including debt, where the fund is invested, your rights to withdrawals and distributions and governance issues. It says you should be told the fund's gearing ratio and interest cover, which show how indebted the fund is and how much cash it has to meet its interest bill, and information on when the fund's debts will mature as well as any associated risks such as the circumstances in which the fund or scheme could breach its loan covenants.

You should also be given information on how the portfolio is managed, including the level of diversification and key aspects of the scheme's valuation policy - so you can determine how reliable valuations are likely to be. The regulator says policies regarding related party transactions should be clearly disclosed and any withdrawal rights should be clearly explained. It also wants full disclosure on distribution policies - where the distributions are coming from - and to give you enough information to assess how sustainable they are if they are not being paid out of the fund's income.

It wants funds to include this information in their disclosure documents and to keep investors updated - either through direct communication or regular updates on their websites.

Can I get this information now?

There is no formal requirement for this information to be provided to investors, though some property schemes are informing investors more than others. If you don't have this information on your investment, it may be worth asking for it.

Will the new standards be compulsory?

The regulator isn't going to insist that property investment funds explain why they haven't met the standards if they fail to do so (unlike disclosure standards introduced for debentures and proposed for mortgage investments). Instead it will monitor the sector to check that disclosure is improved. It has not ruled out a tougher approach if funds don't do better.

You mentioned mortgage funds. Will they be covered too?

The consultation and drafts also propose new disclosure benchmarks for unlisted mortgage investments from October 31. These standards will be subject to the commission's "if not, why not" rule. It found several risks in mortgage schemes. These included liquidity, particularly where it is dependent on inflows from new investors; borrowings or existing investors rolling over their investments; borrowings by the scheme; and portfolio diversification. Misleading advertising, related party transactions and valuation inconsistencies also pose risks to investors.

Under the new benchmarks, mortgage schemes must provide more information on risk areas. For example, the regulator wants mortgage schemes to give investors cash flow estimates for the next three months and to disclose how it will manage the maturity of the fund's assets and liabilities. It says this information is needed because many mortgage schemes are marketed on the basis of giving investors fast access to their money.

It also wants schemes to give detailed information on their portfolios including the number and value of loans in different sectors of the property market (development loans, retail, industrial and so on), loans by geographic region, the proportion of loans made to the biggest borrower, the nature of the security for the loans (whether they're first mortgage or not) and the proportion of loans in default and arrears.