Rismark and Greenway Capital have filters to select who can access an equity finance mortgage. There is criteria around age, credit quality, property values and locations, rules around whether the house is to be owner-occupied or an investment property, borrowing limits, loan span, loans distribution differences (in Rismark’s case loans are sold through Adelaide Bank and in Greenway’s it will be distributed through financial planners), and the list goes on.
Such nuances will impact on the risk and return profile proffered by the fund manager. For example, Rismark won’t lend to anyone over 65 years of age and the current average age for its users to date (funded by Bendigo Bank) is around 40 years of age while Greenway Capital says it won’t lend to anyone under 35 years of age and there is no upper limit.
An external third-party researcher from asset consultant Mercer, David Q. Lee, has been looking at the residential property asset class for some time now, but he still claims it’s one of the most complicated areas he’s ever researched. “It’s a simple idea but eventually it starts to become very complicated when you get down to the product,” he says.
Lee, a private equity pioneer in Australia who is no stranger to complexity, also presented at the Rismark conference with a strong message for the insto audience. He described the evolution of the sector to the insto investment level as a transforming event in Australian capital markets, such that we haven’t seen the likes of in 15 years. However, the sector has suffered from “less than fully informed debate”. Anything with the word “mortgage” in it has been smeared with some of the mud falling out from the sub-prime mortgage woes in the United States, Lee said.
Super fund investors later contacted by Investment & Technology appear to agree with this conclusion. Some said they wouldn’t look at residential property for the very reason that “mortgage” had become a dirty word, and they weren’t prepared to look at it while it remained – rightly or wrongly – the perceived cause of global markets distress.
Leo de Bever, the outgoing Victorian Funds Management Corporation chief investment officer, suggests the asset is avoided in some cases simply because of the public relations implications. “[VFMC] haven’t invested in it, in part because no good deed goes unpunished,” he says. “It’s a perfectly fine asset class. But most super funds I know of in North America [where residential property makes up around 10 per cent of the investable property market] stay away from it purely from a PR point of view. “If you’re caught holding it at a bad time, especially now, it’s very hard to explain. It’s too complicated, and you know what they say about being in complicated structures.”