Bricks and mortar offers investors a port in low-rate storm
“Bricks and mortar” investments in property loans can help provide investors with stable yields that help to take the edge off current low rates in traditional term deposit and fixed income investment vehicles, according to Skyring.
The asset manager’s chief executive, David Mardell, told SMSF Adviser that income-focused investors were becoming increasingly concerned as interest rates continued to drop and the yields received from traditional asset classes became unreliable.
In a recent market update, the asset manager noted that at today's rates with a term deposit at a major bank, retirees with $1 million invested solely in cash would get just $12,000 income a year.
“From our perspective, there has been a lot of downward pressure on interest rates, and over the years, we have been looking for ways to drive income back to investors but with capital security as well,” Mr Mardell said.
“When we designed our fund, it was about driving consistent monthly returns at a fixed rather than floating rate and the underlying security is always on a registered first mortgage.”
Mr Mardell added that property appealed to Australian investors as a secure asset class with the backing of physical assets as security against a potential downturn, hence the appeal of Skyring’s fixed income fund which provided investors exposure to loans for real property purchase and construction.
“There is a lot of commentary in the market, with providers talking about income and driving returns, and while interest rates are important, it is really about the security of capital,” he said.
“We like property as an asset class and we have built our business model like a traditional bank, where they have depositors and registered securities over real property.”
Mr Mardell added that while declining property values in some Australian markets were a concern, a rigorous process and strict lending standards were key in helping investors to avoid losses.
“The key part when you are working with property as an asset class is to make sure you have an independent valuation process, so if the market does decline, we will only lend to 70 per cent of that valuation,” he said.
“The average LVR in our fund at the moment is 62 per cent, so for someone getting a loan, it would have to decline more than 70 per cent for investors to lose capital.”