As a non-bank commercial mortgage manager, Peter Benson, CEO of fund manager Credit Connect Capital Limited, can generate income in all sorts of property market conditions but he prefers an orderly market and thinks the RBA’s comments on the Australian property market are sensible.
Peter commented, “They managed the 2004 situation along with APRA and played an important role in preventing a property bubble.” Peter Benson believes the RBA and APRA have the tools and the will power to prevent a market wide property bubble.
“The RBA and APRA have identified the key areas of risk and they are in communication with the major banks”, Peter said.
Experience matters. “The Council of Financial Regulators (CFR) was still new10 years ago when the RBA and APRA first faced its first challenge to prevent a property bubble. APRA was still new, barely five years old. Economic conditions are different now, but the RBA and APRA now have more experience and tools at their disposal – experience counts.”
“Experience over different types of market conditions matters for a fund manager too” said Peter. As one of the few mortgage fund managers to survive the GFC, Peter Benson goes on to acknowledge that a relatively stable property market, particularly in comparison to the US, UK, Spain, helped. “Our regulators did a good job” Peter acknowledged.
The Financial Stability Review (Sep’14) showed the RBA and APRA were alert. “The RBA noted problem areas. There will always be some. Conditions are favorable for investors in commercial mortgages if they are with one of the few experienced non-bank commercial lenders that survived the GFC. Such managers have the ability to source creditworthy loans and the skills to know the difference – investors can benefit from the better returns too” noted Peter.
The RBA stated that non-bank lending markets did not pose a threat to the financial system and they were smaller than a few years ago, as reported on page fifty-six of the Financial Stability Review. The commercial mortgage fund sector has more than halved since 2008 and that translates into less competition for loans. “That’s good news for our investors as it gives them a bigger choice of creditworthy loans to select” said Peter.
Vigorous press debate over the RBA’s stance can be expected to continue but our regulators have a good track record and the RBA is respected amongst central banks around the world. Peter Benson is confident “the RBA can be expected to deliver a relatively orderly overall property market. That said, Credit Connect Capital Limited will remain vigilant and focus on commercial loans with low loan to value ratios, as they offer the right level of security to weather tough conditions, should they arise.”
As for the level of interest rates, expect them to remain low while the economy adjusts from a mining-investment led boom. Peter Benson points to development and building construction as a new contributor to GDP growth. “Rates have to remain low for while to encourage construction to make up for low levels of the last six years. Our population has boomed, people like migrating here for our quality of life but construction has only just started to respond”, he cautions.
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