Super fund loan schemes taking off
The emergence of geared property investment for self-managed superannuation funds took a big step forward yesterday when Macquarie Group entered the market and one of the established boutique providers, Calliva, announced a distribution and processing deal with the mortgage aggregator and lender Firstfolio.
The ban on borrowing by superannuation funds was effectively ended last year when the Australian government amended the Superannuation Industry Supervision Act to clarify the position in regard to investment in internally geared derivatives such as instalment warrants.
The amendment went much further than expected and established the right of funds to borrow to invest in any asset that they would otherwise be allowed to buy outright.
A couple of specialist groups, Calliva and Quantum, were already in the market with property warrants and bonds. Followers in the market include a Babcock & Brown offshoot called SPI Plan, the structured finance company Seiza Capital, and SMSF Warrants.
Some of these groups are promoting warrant structures and others are offering loans. Investment banks are keen to back lenders in what could be a huge market.
There is close to $300 billion in about 368,000 self-managed super funds, which have until now been locked out of the residential and commercial property markets.
One early entrant into the funding market was RBS, which is backing Calliva with a warehouse facility.
Macquarie Relationship Banking is offering a nine and a half year interest only loan at 10.95 per cent with a maximum loan to valuation ratio of 55 per cent. The property will be held by a trustee until final payment is made and the loan is limited recourse.
Macquarie Relationship Banking executive director Dean Firth said the bank would lend on balance sheet, although it may look to securitise in future. Lending is only on residential property.
Firth said the product, Macquarie Property Lever, would be subject to further development, with longer loan terms and the capacity to lend on commercial property.
Calliva has been in the market since May last year but restructured its offering after the passage of the SIS Act amendment. The new product, a loan at 10.5 per cent with a maximum LVR of 70 per cent, is being distributed through selected Firstfolio brokers.
Firstfolio will also process applications through to settlement.
Calliva chief executive Vince Scully said the processing agreement would allow Calliva to handle growing volumes without running into capacity constraints. He said the inquiry rate was "huge".
An industry source said two of the big four banks were well advanced with plans for their own SMSF property investment products.
However, there are a few clouds on the horizon. Sections of the superannuation industry are calling on the Government to review the SIS amendments, arguing that unconstrained borrowing was never meant to be part of the superannuation system.
They are also calling for a review of some products in the market, particularly those that require personal guarantees from super fund members. The legislation requires that loans must be limited recourse so that other assets of the super fund are not put at risk if the loan goes bad.
One option has been to require the individual members of the fund to give personal guarantees. There is considerable debate within superannuation circles about whether this is actually allowed.