Jun 13 2018Add to Favorites
With the global interest rate environment at all-time lows and banks paying a meager annual rate on savings, which is typically lower than the inflation rate, investors are having to search for opportunities to make their capital work harder. Balmain Private has created a digital concept where the group originates low Loan to Value (LVR) senior debt for real estate assets, which investors can then participate in via a digital platform. Balmain Discrete Mortgage Income Trusts provide investors the ability to invest alongside or “pari-passu” to Balmain, in individual, first mortgage secure loans.
Managed entirely online, the loans have already been originated, approved and funded by Balmain, are fixed term and get a significant participation from Self Managed Super Funds.
“We have over $200,000,000funds under management currently with about 950 individual investors,” Says Balmain Private head of Distribution, Tom Sherston.
“The minimum investment in any loan is $10,000, with typical terms ranging from a few months to three years, with the average net return so far sitting at 7.86 percent, paid monthly”.
Of the Loans repaid 46 percent have exceeded their Target Rate of Return, while the rest have met theirs.
A residential investment in Brookwater, Queensland, of $5,000,000 over three months, earned a return of 10.34 percent, based on a Target Rate of Return of 7.65 percent. Security on the loan was a first registered mortgage General Security Agreement (GSA), guarantees and indemnities from the director and related entities.
In Wetherill Park, NSW, an investment into a commercial development site met its 10.50 percent Target Rate of Return, following a three-month term. The loan amount was $4,471,000, with an LVR of 62 percent.
A $2,700,000 loan on a commercial/residential investment in the ACT exceeded its 10 percent Target Rate of Return, earning an actual return of 11.25 percent over a four-month term.
In Greenvale, Victoria, a $2,100,000 loan over a five-month term, met its Target Rate of Return of 7.6 percent. The security on that loan was a first registered mortgage, GSA, personal guarantees for the full amount of the loan plus interest.
The current investment landscape in Australia is driven by a range of factors, not least the 2019 federal election, and the view is that the result of the Wentworth by-election, a seat that has historically been monopolised by the Liberal Party, will be the foreshadowing of the federal outcome. The Australian equities market is experiencing volatility, with a 200 point drop last week in the S&P ASX index, the largest drop this year and potentially the result of sentiment surrounding geopolitical headwinds with the latest developments relating to the trade war between the USA and China. Global bond rates remain low, and despite incremental increases, interest rates are too low to be attractive from an investment perspective.
In an ongoing low-interest rate environment on savings and with banks withdrawing from property and construction financing, investment groups like Centennial Property Group are seeing value in providing first mortgage funding for property development, recently settling a $48m loan for a mixed-use retail/residential development in Sans Souci, NSW
With the combined influences of a cooling residential property market and heightened bank scrutiny on all aspects of real estate lending, traditional debt sources are, in many cases, closed to developers and commercial real estate investors, particularly where circumstances require a specific funding solution.
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