Australia’s largest superannuation fund is changing its rules to prevent investors running for the exit in the case of a major property market crash.

AustralianSuper will now be able to freeze its property fund for up to two years, preventing members from withdrawing their investments, switching to other options or making contributions.

The industry super fund said the freeze would only be applied in “exceptional circumstances in response to a market stress event”, citing Brexit as an example.

In 2016, real estate investment trusts in the UK were rocked by the vote to leave the European Union and investors started to pull their cash out of some funds, leading others to block withdrawals.

Economic forecaster Frank Gelber said it was an “anomaly” that AustralianSuper gave members the ability to redeem their investments in assets that are difficult to convert into cash in the first place.

A pop-up on the AustralianSuper app alerts members to the changes.

“If there is for some reason a run on property investment – in other words, people want to redeem their investments quickly – they won’t be able to pay the cash, because they can’t sell the property in enough time,” said Dr Gelber, describing the changes as “sensible” and allowing for an “orderly sell program”.

“In the future if there was a major event that made it difficult to sell assets at the right price, then we don’t want to be doing that because it would damage members’ balances,” AustralianSuper group executive Paul Schroder said.

“The freeze is anticipated to be a rare event but only ever designed to protect members’ interests.

AustralianSuper is also changing its rules so members can only invest 70 per cent of their retirement savings in the direct property fund.

Members with more than 70 per cent currently invested in the property option will have the excess transferred to AustralianSuper’s balanced option.

“The majority of members are invested in our balanced option – that has exposure to property, and that exposure is entirely unaffected by this change,” Mr Schroder said.

The fund said $1.7 billion is currently invested in the property option, something Mr Schroder described as “not a substantial” part of AustralianSuper’s more than $140 billion in funds under management.

He said a “relatively small number” of members would be affected by the 70 per cent cap.

Members will need to opt in to remain in the property option and consent to the freeze and the cap by early November or their investments will be switched to the balanced fund.

No property crash seen on the horizon

Mr Schroder told the ABC the decision was not prompted by any specific event and was part of a “routine process”.

“These changes are not about current market sentiment – they are entirely about ensuring the members who choose to invest in property can do so in a way that doesn’t disadvantage the other members in the fund,” he said.

Conditions in the commercial property sector are under scrutiny, however, with the Reserve Bank labelling it “an area to watch”.

In its half-yearly financial stability review in April, the central bank noted that growth in prices of non-residential commercial property, including offices, continued to outpace the growth in rents.

Commercial property rents aren’t keeping up with price rises. Photo: RBA

“Conditions in retail property markets continue to be subdued. Rents have been flat amid headwinds to retailers’ margins that are associated with strong competition from online and new entrants,” the RBA said.

In a more recent paper, RBA researchers argued that the challenging retail environment could impact the major banks, noting that, while the impact has been minimal so far, it needs to be closely watched.

Dr Gelber, of BIS Oxford Economics, is not expecting any “cataclysmic” event in the near term, but said it could be possible in the future if the boom in office property runs too hard and collapses.

He noted the differing conditions in commercial property markets across the country, with the upswing in the office markets of Sydney and Melbourne out of sync with Brisbane, Perth and Adelaide, while industrial property markets continue to slowly rise and retail comes “under question”.

Rising bond yields are also a headwind for the sector, as it threatens the attractive returns that have seen investors flood in amid historically low interest rates.

“We’ve had a tailwind in all equity markets, not just property, but also in infrastructure and the share market, from falling interest rates post-GFC, which has led to people putting their money into real assets to get better returns, and weight of money has pushed yields down and prices up,” he said.

“Our logic is that returns over the next five years are going to be much lower than they have been over the past five years and you need to adjust your investment accordingly.”

–ABC