With the negative media surrounding property prices, we analyse if now is a good time to invest in first mortgage real estate funds.
Moody’s Analytics expects property prices to fall by 11.4% in Melbourne and 9.3% in Sydney throughout 2019. However, a slow recovery is expected in 2020, further improving in 2021. The current fall in property prices is generally isolated to Sydney and Melbourne. Particularly, over the past 12 months the ABS Property Price Index evidences a rise for Adelaide, Hobart and Canberra with Brisbane and Perth generally remaining stable (refer Chart 1).
Whilst Sydney and Melbourne are currently in decline, it is important to recognise the strong capital growth that these markets experienced throughout the past 5 years. Despite the recent decline, the Sydney Index is still up 35% over the 5-year period to December 2018 and the Melbourne Index is also up 32% over the same period. Brisbane evidenced more moderated growth and is up 15% over the same period, however without evidencing the pronounced decline over the past 12 months (refer Chart 2).
Given that a typical property project will take over 12 months to achieve practical completion, the 2020 recovery in the property market aligns well with investing in first mortgage funds that are offered by BPFM. Given that the fund is first secured, the typical maximum gearing that is offered by BPFM is 65% against the completed value. This leverage point allows for a good buffer against macro and micro economic events that may impact on the completed value of the development without impacting on the capital investment and forecast returns provided to investors.
// About BPFM
Broad Peak Funds Management (BPFM) specialises in originating and managing Investment Vehicles (Funds) which provide senior debt property finance solutions to developers.
We offer senior and stretch senior development finance loans across a range of asset classes, including residential, mixed-use, industrial and commercial.
Working closely with our investment partners in structuring funding packages, BPFM deliver flexible and innovative platforms for our clients’ investment needs. Differentiating ourselves from our competition and the typical approach of the major banks, our analysts possess the skills and expertise to manage your investment horizon.
Disclaimer
The information contained within this article is for general information purposes only. It is not intended as financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified and registered legal, financial or investment adviser. No material contained within this article should be construed or relied on as providing recommendations in relation to any financial product.