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Could proptech become a victim of the sophisticated investor test?

By Alana Su-Navratil
30 January 2024 | 10 minute read
antonia mercorella reiq 2 reb bbizhl

The Real Estate Institute of Queensland (REIQ) has warned that proposed changes to the Sophisticated Investor Test (SIT) could “sink start-ups and strangle small and medium commercial property investment funds”.

The federal government’s proposed plan is to lift the test’s financial threshold to $450,000 in income and $4.5 million in net assets from where it currently sits at $250,000 annually (for two consecutive years), or holding net assets of at least $2.5 million.

REIQ CEO Antonia Mercorella warned that the outcome of this potential plan could pull much-needed investment out of Queensland, when the state already has difficulty attracting private investment.

She is worried that “by increasing threshold and shutting out investors, the government is putting Australia’s emerging proptech industry at risk”.

Pointing out that Australia is currently ranked 87th for economic complexity by the OECD, she argued that “to remain relevant, our government needs to ensure that the Australian economy is diversified”.

“Of note, only 11 incorporated limited partnerships (or venture capitalists) were registered in Queensland over the three-year period from 2019, showing how fragile this sector is in the state,” she continued.

“Further, the change to the SIT will impact small and medium commercial property investment funds’ ability to raise money – which in turn will reduce competition in the commercial property space.”

Currently, once the corporation or individual has met the criteria for the test, they are able to invest in companies outside of the stock exchange, including start-ups and commercial property trusts.

The new proposed threshold effectively shuts out investors who previously met the criteria.

“It’s a step in the wrong direction to reduce the opportunities for individuals to build wealth”, Ms Mercorella said, before making the argument that “the nanny state should not be picking and choosing which financial investments individuals can make through arbitrary changes”.

“The SIT does not apply to individuals looking to take risky investments in small cap ASX-listed companies nor does it apply to high-risk endeavours such as gambling,” she said.

For REACH Australia managing partner, Peter Schravemade, a better solution could be achieved with substantial investor protection that does not affect start-ups.

“[Its] short-sighted and is likely to have widespread repercussions for companies going through the start-up and scale-up phases of business.”

As he is concerned with the impact of these potential changes on the broader economy, instead he’s proposing the exploration of alternative solutions that give investor protection all the while incorporating “Australia’s entrepreneurial spirit to shine”.

Could proptech become a victim of the sophisticated investor test?
antonia mercorella reiq 2 reb bbizhl
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