Some great ideas take time to take hold. Just look at bottled water: the concept of selling it was once considered laughable madness. Who’s laughing now? In Australia, residential property doesn’t feature in any superannuation fund’s investment portfolios and you’d be hard-pressed to find a fund that would admit it is even on their investment radar. But as CATHERINE JAMES reports, the signs are that this is changing.
A half-day conference for institutional investors hosted by Australian residential equity mortgage provider, Rismark International, in Melbourne last month had around 50 to 60 people in tow. It would probably not have drawn even a quarter of that figure a few years ago.
So people are interested, although as yet, no one is buying. However, word among direct property managers and purveyors of ‘shared equity’ products is that the so-called largest asset class in Australia is slowly gaining traction in the minds of the instos. They seem to be holding their breath for the first super fund to jump into the lesser-known waters, knowing that once that is done, other funds will follow.
It is quite likely they won’t be holding their breath much longer. Rismark managing director Christopher Joye says he is confident of raising “non-trivial” amounts of money in the next 12 to 18 months. Another shared equity fund manager, Greenway Capital, confirms it has also noticed an increase in interested parties. But with the property market in dire straits – listed property values are diving and some pundits are saying it’s only a matter of time before unlisted valuations catch up – as well as the more complicated nature of residential property portfolios over their commercial, retail or industrial peers, it’s a tough sell.
And when it comes to selling the product, few have a tougher gig than shared equity fund managers. They are fighting a war on two fronts. They have to convince institutional investors of the merits of exposure to capital appreciation in residential property, and they have to persuade mums and dads it’s a sound alternative to the traditional mortgage structure.
There are many different types of shared equity products. At the Rismark conference, questions from the audience, mainly institutional investors, were dominated by how the product operates at the mum and dad level. Of course, this is because to some extent the homeowners who use a shared equity mortgage are co-investors. And if not regarded as co-investors, then at least their demographics and the process used to select them would still be part of assessing the underlying assets’ value and pricing the risks.