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THE corporate regulator is preparing a crackdown on the $400billion-plus property finance sector in an attempt to curb a spate of collapses in the high-risk market dominated by mum and dad investors.

The move follows the release yesterday by the Australian Securities and Investments Commission of a report into its investigation of 94 unlisted companies operating in the $8 billion property “debenture” finance industry.

ASIC chairman Tony D’Aloisio told The Australian the regulator would broaden its investigation, which was sparked late last year following the high-profile collapses of property groups such as Fincorp and Westpoint.

“We are now really looking more broadly at the unlisted property area, such as mortgage funds and other related property funds,” Mr D’Aloisio said yesterday. “We think it’s an area that merits examining, and a number of the people we’ve had working on the unlisted, unrated debenture area have now moved across to examine that broader unlisted sector.”

The crackdown would be widened to examine mortgage fund companies similar to the $770million MFS Premium Income Fund, which was frozen in January because of “insufficient cash”, and the $275 million Donovan Oates Hannaford Mortgage Corporation, which was liquidated in February.

As revealed by The Australian last week, 15 of the biggest 94 debenture companies under the ASIC’s original investigation - holding $2.5 billion of investor funds - had failed at least three of eight new benchmarks set down by the corporate regulator.

Under company law, the difference between debenture companies and other investment groups is determined by how investor funds are accounted for.

Debenture companies, such as Fincorp, “borrow” money from investors with the promise of high rates of interest and repayment. The money is often lent for use by property developers. The much bigger mortgage funds industry also raises money from the public to lend to property developers, but such deposits by customers are known as “investments”.

In its report released yesterday, the ASIC found half of all surveyed debenture companies failed to meet a benchmark requiring them to inject a minimum level of equity into their operations.

All but two companies investigated had not met a requirement to have their investment products rated by a credit ratings agency, while more than 80 per cent failed an ASIC benchmark relating to the way property valuations were conducted.

Mr D’Aloisio said while the ASIC believed all debenture companies should adhere to the eight benchmarks it had prescribed, the intention of the “if-not-why-not” approach was to ensure investors knew the risks associated with their investments.

Mr D’Aloisio said the ASIC would seek to implement a similar approach to the broader property finance sector.

By Anthony Klan