Investor’s Update – July 2022

The unit price across all three of our retail funds remains stable at $1.00.

All monthly distributions have been paid in full for the month of July.

Lending Activity Update

Quarterly Loan Settlements
as at 30^th of July 2022

Current Loans by Fund Source
as at 30^th of July 2022

Current Loans Geography
as at 30^th of July 2022

Why Invest with ASCF?

One word liquidity!

Liquidity is one of the most significant benefits of investing with ASCF and what distinguishes our funds from most other mortgage funds in the market.

As we discussed in last months article 98% of the loans we approve have an initial loan term of 12 months or less and almost 60% an initial loan term of 6 months or less thereby creating a better alignment of security property values with movements in the general market property market as existing loans are repaid and new loans originated at current property values.

It also means we are able to offer investors investment terms of 3,6,12 and 24 months with confidence and full knowledge that should they require to redeem their investment at maturity our loan terms are aligned with the average investment term.

Mortgage funds that provide investors with investment terms of say 12 months or less and then offer loan terms of 2 years or more are certainly at greater risk of experiencing a liquidity issue as their investment terms clearly do not match their loan terms. This would make it difficult to redeem investor funds on maturity if required.

Since inception, all ASCF investors have had their request to redeem funds paid on time and in full.

An Interesting Transaction

Problem:

ASCF was approached by a broker whose client was looking to purchase a property in the suburb of Hillcrest, Queensland. The property had been purchased off the plan and had experienced significant uplift, creating an opportunity for them to sell the property and make a profit. The investor already had two other properties in Wetherill Park, New South Wales and a second home in Hillcrest, Queensland, under mortgage, which they also planned to sell for profit.

Solution:

After obtaining a valuation, ASCF took a 2nd mortgage over their existing Wetherill Park property and a 1st mortgage over the property being purchased and provided the borrower with a loan of $ 252,500 at 9.75% for four months on an LVR of 51.56%.

The borrower plans to use the proceeds from the sale of the property to pay back their debt.

What ASCF Does Differently:

ASCF excels in providing boutique financing solutions at competitive rates. We review the borrower’s requirements and, unlike other lenders, are able to think outside the box to offer bespoke solutions that enable the borrowers to achieve their goals.

Market Update

Australian residential property values fell by 1.3% in July bringing the total quarterly decline across the country to -2%. Inventory levels have also decreased significantly and have now fallen -21.40% from the mid-March peak, helping to keep overall inventory levels low whilst on the demand side sales activity over the three months to July was -16% lower in comparison to the same period last year.

While national home sales are also falling from record highs, they are still +9.20% above the previous five-year average for this time of year. With interest rates expected to rise further, there is a good chance that the number of transacted sales will continue to fall as confidence continues to weigh on the housing sector.

On a more positive note, however, rents across the country continued to increase through July rising +0.90% for the month to be +2.80% higher for the quarter and +9.80% higher over the past 12 months.

Rental market yields seem to be consistently improving with the most rapid recoveries in the Sydney and Melbourne unit markets. Furthermore, financial markets and some economic forecasters are now also expecting interest rate cuts through the second half of next year which means the interest rate hiking cycle may be over sooner than expected.

Whilst we, therefore, expect that property prices will retreat further we believe that the declines will be much more subdued than most economic forecasters had predicted at the start of the year particularly as interest rates stabilise over the coming months, residential property yields continue to improve and incomes continue to rise.

The weighted average clearance rate across the country this week was higher than last year at 51.9% (+11.80%). Other cities across the board also achieved rates higher than last year, with Sydney up by 2.70% from last year.

Buying activity has been picking up in the smaller capitals with clearance rates up by 9.20% from last year.

Hitting it out of the Park

Tennis Australia CFO Craig Tiley has broken a record in Melbourne’s Aspendale suburb by spending $13 million for a trophy home on the beach. The property is 2000 sqm in size and obliterated the original $8.5 million to $9 million price guide. The Jon Friedrich designed home, which includes a heated swimming pool, was also offered with a price guide of $6.4 million to $6.75 million through Kay & Burton Real Estate.

Source: Australian Financial Review

Rising Reserve Rates

Deputy Governor Michelle Bullock indicated earlier in July that the Reserve bank is likely to continue raising interest rates. She noted that the intention of the RBA is not necessarily to help or hinder the economy but instead to provide a ‘neutral’ interest rate. Most borrowers will be well-placed during this time as high debts are buoyed with equally high assets. “The accumulated stock of these savings could help to ease the transition to higher mortgage payments for many borrowers, allowing them to sustain higher levels of consumption than otherwise.”, Ms Bullock commented.

Source: Australian Financial Review

The ART of the Deal

Australian superannuation fund Australian Retirement Trust (ART) has brokered a deal with the government-owned Queensland Investment Corporation (QIC) to provide $500 million dollars in funding for the development of over 1200 affordable homes in Queensland. The move is the first time ART has pursued a social, issue-focused investment since it was founded this year by a merger between Sunsuper and QSuper.

Source: Australian Financial Review