Shared equity equals profitable innovation
Australian Financial Review
27 August 2009
Australia's first national "shared equity" investor, Rismark International, has revealed the performance of its main residential property product for the first time. Rismark International Managing Director Christopher Joye said the group's shared equity portfolio had outperformed the Mercer Unlisted Property Funds Index, bank bills, the S&P/ASX Property 300 Index, Australian and international shares, and the underlying housing market since it started investing in March 2007.
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Observations on residential housing: the shared equity loan
Professor Robert R. Officer
JASSA
Issue 1 2009
Most households rely on traditional interest-bearing debt which can expose them to significant risks, such as sudden changes in economic growth or interest rates. Such risks could be alleviated through a better mix of external debt and equity for households via shared equity loans. Shared equity loans also appear to be a good investment for the investment house sharing the equity. On the basis of limited data, they return significant abnormal returns or ‘alpha’ for their risk.
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A housing revolution is needed
Business Spectator
9 February 2009
This week I have been invited to travel to New York to present some Australian policy ideas to a private summit for the new Obama Administration entitled 'A crisis is a terrible thing to waste: Transforming America’s housing policy'. The summit, organised by The Rockefeller Foundation, The MacArthur Foundation and New York University’s Furman Centre for Real Estate, is being convened to consider, among other things, how to use the current crisis to “fundamentally rethink federal housing policy and provide President Obama, Congress, and the President’s appointees with specific recommendations for how to reconstruct the mortgage finance system, bring new models for first-time homeownership to scale, [and] link affordable rental housing with economic opportunities”. I will be the only Australian delegate and will be presenting on a panel with the economist Robert Shiller of Yale (famous for predicting both the 2001 tech-wreck and the US housing carnage) on the subject of 'Reclaiming the promise of homeownership: New models to help first-time homebuyers achieve stability and build wealth'. Amongst the stellar line-up of US thinkers, I am looking forward to hearing from Obama’s new housing czar, Shaun Donovan, who is giving the keynote address, leading economists such as Edward Glaeser (Harvard), Susan Wachter (Wharton), and Dwight Jaffee (Berkley) and Austan Goolsbee, who was Obama’s primary economic advisor during the presidential campaign. The policy ideas I will be presenting are some of the (apparently timely) recommendations from my 2003 report to the Australian Prime Minister’s Home Ownership Task Force, which outlined several demand- and supply-side solutions to the housing affordability problem.
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Overlooked solution to credit crunch
The Australian
15 December 2008
The most fundamental lesson of the global credit crisis has been that the financial system had too much leverage, particularly the household sector, which in many advanced economies had assumed unsustainably high levels of mortgage debt. But surprisingly, that there has been little comment about the most salient solution: equity. For hundreds of years listed companies have been able to seamlessly issue both debt and equity to finance their spending. Yet apart from recent innovations pioneered here in Australia, households have never been able to source both external debt and equity finance when buying their homes. This extreme reliance on debt has propagated huge problems, particularly in the US and Britain where the conjunction of flawed institutional frameworks and poor lending standards exacerbated the debt binge. In 2003 I was the principal author of a report commissioned by the Prime Minister's Home Ownership Task Force that presented a solution to the high levels of household debt that triggered the global credit crisis: the development of private markets in equity finance. Under our proposal, households would get access to zero-interest rate, shared equity home loans in exchange for trading away a small portion of the risks and returns of home ownership to outside investors. By doing so, they could cut their monthly mortgage interest repayments by 30 per cent or more while reducing their vulnerability to adverse economic shocks (think 2008-09). Importantly, they also retain complete control of their homes; they choose when to sell, what renovations to make, and at what point in the contract's maximum 25-year term they wish to repay it. Investors, such as super funds, get extremely low-cost, highly enhanced and very long-dated exposures to what has during the past three decades (including the recent calamity) been the largest and best performing of all investment classes: residential real estate. Historically, investors have only been able to access highly concentrated, risky development-style holdings comprising small parcels of properties that incur heinous transaction costs of about 12.5 per cent. By investing in a portfolio of thousands of shared equity interests, super funds could avoid all of these costs and secure the low risk diversification that they have never had before. Independent actuarial analysis suggests that about 15 to 30 per cent of all super fund capital should, in theory, be allocated to housing, in part because its returns are so unrelated to the performance of other investments. Compare the 50 per cent plus losses in shares and listed property trusts in the past year with the fact that the RP Data-Rismark Australian House Price Index has tapered by only -0.8 per cent.
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Foolish to worship in real estate’s temple of doom
The Australian
3 December 2008
The economics of Australia's $3.3 trillion housing market are widely misunderstood, with sensationalist claims that a housing bubble caused the global credit crisis and that Australian house prices will fall. In fact, the latest RP Data-Rismark Index results show that Australian house prices declined by just 0.8 per cent in the 12 months to October this year, and increased during the most recent three months. In Australia, the hyperbolic predictions of economists Steve Keen and Gerard Minack that house prices will fall by 30 per cent to 50 per cent have been relentlessly recycled in newspapers and purportedly credible programs such as 60 Minutes and The 7.30 Report. The doomsayers' claims are based on the assumption that housing affordability is at an all-time low. Recent analysis by the Reserve Bank of Australia has comprehensively demonstrated that housing affordability is not at an all-time low. The Reserve Bank believes Australia's housing market is leading the US by three years, having entered into its downturn in 2004. There is also a consensus between the Reserve Bank and most economists that the doomsayers' predictions will be proven wrong. A striking counterfactual is the 1990-92 recession, when unemployment hit 10.9 per cent yet house prices rose by 2 per cent a year according to the Australian Bureau of Statistics. The media would do well to interrogate sensationalism.
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$500m for shared equity mortgages to keep people in their homes
Liberal Party Media Release
3 December 2008
Federal Shadow Minister for Housing and Local Government, Scott Morrison, said today the Commonwealth Government should look to invest up to $500 million of funds allocated for residential mortgage backed securities to support shared equity loans to ensure mortgagees continue to have access to this viable option to reduce their mortgage burden, especially during the global financial crisis. Mr Morrison told Parliament last night that an allocation of $500 million from the existing $8 billion investment in residential mortgage back securities (RMBS) market would boost liquidity and ensure continued competition for housing finance, by supporting the continued availability of shared equity mortgages in Australia. “This could allow around 5,000 Australian households to instantly cut their monthly mortgage repayments by up to 30% or more (1), or to reduce their upfront home purchase costs by a similar amount. It should also provide the Commonwealth with a higher expected return than it will earn by investing in normal home loans (2).” Mr Morrison said.
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Government intervention in securitisation market
The Australian
2 October 2008
For those of us in the business of coming up with good ideas, the innovations we propose rarely see the light of day. And when they do, it typically takes years of toil. But it was just six months from the publication of our paper by Melbourne Business School's Centre for Ideas and the Economy on March 26 to the Government's announcement on September 26 that it would adopt our proposal to intervene in the market for AAA-rated mortgage-backed securities. In between, the idea was backed by industry groups, smaller banks, building societies and non-bank lenders. It was also supported by the 2020 Summit and a Senate select committee on housing affordability.
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New way to buy a piece of property
The Australian
11 September 2008
Buying into Australia's $3.2trillion housing market -- without owning a single property -- will soon be a mouse click away. An agreement between the Australian Securities Exchange and property research groups PR Data and Rismark has paved the way for the introduction next year of residential property derivatives, which will be traded on the ASX like shares. Modelled on a successful US scheme that had $US2 billion worth of trades in its first year, Australian investors will be able to both buy and sell derivative or futures contracts in our major housing markets without owning property. RP Data, which is Australia and new Zealand's largest property data business, holds more than 113 million property data records covering 98 per cent of all homes. The scheme will use the long-established RP Data-Rismark indices, regarded as the market leader, to measure house prices.
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House prices go to market
The Australian Financial Review
11 September 2008
Investors will be able to trade in listed derivatives based on the $3.2 trillion residential property market under a scheme unveiled yesterday by RP Data and Rismark International. ASX corporate relations manager Matthew Gibbs said property derivatives could be used, for example, by a first-home buyer saving for a house deposit, to profit from an increase in property prices while saving. Property derivatives could also provide a hedging mechanism for property owners. "For instance, a property owner could hedge against a possible fall in the value of residential property prices by taking a derivatives position that profits from a fall in prices," he said in a statement. DTZ national research director David Green-Morgan predicted investors would embrace derivatives.
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Role for super in housing - ACTU
Money Management Magazine
3 July 2008
Superannuation funds need to be involved in solving Australia's chronic housing shortage, according to ACTU president Sharan Burrow. Speaking at a Rismark International conference in Melbourne, she said residential property was an asset class superannuation funds should be looking at. "The ACTU believes superannuation funds are patient long-term investors that can, and will, be part of the housing affordability solution," she said. Burrow said equity finance mortgages (also known as shared equity) packaged for institutions would enable superannuation funds to invest in residential property without buying individual properties. "A shared equity portfolio provides well-diversified long-term exposure to the residential property asset sub-class," she said. "Residential property is the largest single asset class in Australia, valued at about $3.2 trillion. Burrow said shared equity offers funds a cost-effective approach to investing in an asset class that was previously seen as untouchable. Speaking at the same Rismark conference, ANZ head of property and financial system research Paul Braddick said during a 22-year period residential property had outperformed every other asset class. "There are a lot of pessimistic views about residential property," he said. "But the critics are ignoring supply and demand, which is driving the fundamentals of the asset class." Mercer Investment Consulting principal David Lee said there are lots of potential investment opportunities for superannuation funds in this asset class. "Funds should be taking a long-term view on residential property and should pick strong managers in the asset class," he said.
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ACTU backs loan plan
Australian Financial Review
3 July 2008
The ACTU has thrown its weight behind the concept of shared equity home loans in addressing the affordability crisis. ACTU President Sharan Burrow said yesterday that super funds were more aware of their social obligations and allocating a share of their investments to residential property, including shared equity, would meet this goal. The ACTU head predicated that shared equity mortgages were likely to take root in the middle and higher ranges of the income distribution. She dismissed criticism of shared equity initiatives for stimulating housing demand, noting they could make up just 2 percent of the overall housing market. A private seminar hosted by fund manager Rismark International for institutional investors, which also attracted some sovereign wealth funds, was told that institutions were becoming more supportive of the area. Newly appointed Rismark chairman Greg Woolley, who also heads the LJCB Investment Group which has invested in the Rismark business, said the shared equity concept was a fantastic consumer proposition and there was strong appetite amongst super funds to invest in the asset class. "Rismark is seeking to provide super funds, and other investors with long-term investment horizons, an effective way of accessing the many attractive characteristics of this investment proposition." Rismark also appointed former ISPT head Arthur Apted to its Advisory Board.
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Reality check
The Australian
31 May 2008
Once more the belief in efficient markets and rational investors that has underpinned both theory and practice in these markets has been found wanting. The only surprise, and that a mild one to anybody familiar with human behaviour, is how long beliefs and practices based on demonstrably false premises can persist. However, this is changing under the pressure of persistent assaults from market events and the findings of new areas of theory, notably behavioural finance. The global credit crunch is only the latest in a series of severe market dislocations that seem to be increasingly common. Two Australian economists, Christopher Joye and Joshua Gans, have provided a timely discussion of these developments in a recent paper, "Aussie Mac: A policy proposal for Australia".
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An equity kicker
Forbes Magazine
May 2008
Trading future appreciation for lower payments can work. In Australia a company called Rismark provides homeowners with an amount equal to 20% of the value of their home. In return Rismark gets 20% of the eventual sale price plus another 20% of the appreciation. Years ago (circa 1982) a few U.S. lenders experimented with such "shared appreciation mortgages," ... It's time for both borrowers and lenders to reconsider the concept.
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A share of the prize
Super Review
November 2007
Once more the belief in efficient markets and rational investors that has underpinned both theory and practice in these markets has been found wanting. The only surprise, and that a mild one to anybody familiar with human behaviour, is how long beliefs and practices based on demonstrably false premises can persist. However, this is changing under the pressure of persistent assaults from market events and the findings of new areas of theory, notably behavioural finance. The global credit crunch is only the latest in a series of severe market dislocations that seem to be increasingly common. Two Australian economists, Christopher Joye and Joshua Gans, have provided a timely discussion of these developments in a recent paper, "Aussie Mac: A policy proposal for Australia".
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EFM wins trifecta of awards
www.lendingcentral.com.au
1 January 2008
Australia's first ever shared equity mortgage product has won a trifecta of major industry awards in its first year of operation. Rismark's patented 'Equity Finance Mortgage' (EFM) was this week awarded 'Best New Product of 2008' by Money Magazine in its 'Best of the Best' awards edition. Also this week, Rismark was named as 'Australian Banking & Finance Magazine'Â’s Best New Financial Start-Up of 2007' by Australian Banking & Finance Magazine. These accolades follow Your Mortgage Magazine's recent selection of the EFM as the 'Best New Product of the Year in 2007'.
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Best New Product of the Year 2008
Money Magazine
5 December 2007
Money Magazine has today announced in its flagship 'Best of the Best' awards edition that it has selected Rismark's Equity Finance Mortgage (EFM) as the 'Best New Product of 2008'. Money MagazineÂ’s selection of the EFM as the 'Best New Product of 2008' follows Your Mortgage Magazine also awarding the EFM as the 'Best New Product of the Year in 2007' earlier this year. In the award summary, Money Magazine says: "Rismark's Equity Finance Mortgage is a welcome first for battlers wanting to jump into a home of their own. In partnership with Adelaide Bank (and now distributed through various mortgage managers and banks), Rismark gives home owners an opportunity to call on a 'silent partner' to help reduce the upfront and ongoing costs of buying a home. "An innovative product that addresses the issue of housing affordability" says Cannex."
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Best New Product of the Year - EFM
Your Mortgage Magazine
1 August 2007
The best new product award went to Rismark's innovative new Equity Finance Mortgage (EFM)... The shared equity mortgage uses a unique partnership between an equity provider and a traditional lender to put together a previously unseen package for the borrower. The idea of a lender taking an equity stake in your home may seem bizarre, but it's allowing homebuyers to buy more expensive homes or re-mortgage their existing home at a lower level.
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Home loan a capital idea
Australian Financial Review
22 September 2007
A home loan where you don't have to make monthly repayments sounds like a good deal as interest rates head upwards. A new product, the equity finance mortgage, promises to do just that. The equity loan cuts the amount home buyers must outlay to buy a property in return for a share in the capital gains for the lender. This sounds as if it would have huge appeal to strapped first-home buyers, after median property prices soared in major cities over the past decade. But the wealthier end of the market, focused on houses in the $1 million to $2 million bracket, is turning out to be one of the biggest users of the product.
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Rismark patent corners shared equity loan market
Australian Financial Review
18 September 2007
Residential property funds management group Rismark International has taken out patents over the shared equity home loan it invented to stop its larger rivals breaking into the market. The patents could prevent the banks from launching their own products without dealing with Rismark. "Any potential infringer of Rismark's intellectual property faces the prospect of a long, drawn-out court case," said Rismark's lawyer Stephen Stern, the head of Corrs Chambers Westgarth's intellectual property practice. "The question around business method patents is almost certain to have to be ultimately heard by the High Court, and nobody knows which way they will lean. The one thing we do know is that several years, and many millions of dollars, will be sacrificed before a definitive answer emerges," he said.
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Patience rewarded in home stretch
Sydney Morning Herald
24 March 2007
IN ALL of the hoopla surrounding the launch of Australia's first equity finance mortgage recently, it's easy to overlook an equally important investment opportunity emerging alongside. Rismark International, the company pioneering the EFM, has teamed up with Adelaide Bank to market the new EFM, which is designed to make the purchase of a home cheaper for borrowers. However, for every dollar that someone wants to borrow, Rismark has to find a dollar to lend to them. That's where the second thread of the story comes in: Rismark is poised to launch a new unit trust, the Rismark Active Property Trust (RAPT), which will give investors the opportunity to invest in residential property in a way that, until now, simply hasn't been possible. Money invested in the RAPT will be loaned to EFM borrowers. The arrival of the EFM will therefore benefit those who want to own their own home, and the RAPT those who want to invest in residential property. Rismark's head of capital markets, John Powell, says the company is "still working through exactly what [the trust] is going to look like". "We have a subsidiary called Rismark International Funds Management, which is a responsible entity, so it's a unit trust," Powell says. "Investors will buy units in the trust, just like buying units in an equity trust. It's no different in that respect to investing in, say, Perpetual's Industrial Share Fund. "And the returns will be linked to the future capital values of the [residential] properties." The head of Mercer Investment Consulting, Tony Cole, says he expects investment in EFMs to be attractive to institutional investors, including major superannuation funds. In a recently published research note, Cole says equity mortgages give investors exposure to an asset class that has been difficult for them to access in the past. He says the returns from residential property are expected to remain strong, notwithstanding recent strong performances, due to basic supply and demand imbalances. But additionally, investment in residential real estate can reduce the overall risk - or volatility of returns - in an investor's portfolio. "Historically, residential real estate displayed a negative correlation with commercial property markets and a low correlation with the sharemarket, therefore providing diversification benefits in a multi-asset class portfolio," Cole says. Since the Herald first reported on the development of the EFM, back in November 2005, readers could be forgiven for wondering where the product had gone. Rismark's managing director, Christopher Joye, says much of that time has been spent thrashing out details with the Australian Securities and Investments Commission, the Australian Competition and Consumer Commission the Australian Taxation Office and various state fair trading departments. But the upside, Joye says, is a product that has a good level of regulatory integrity and which can be distributed easily through traditional mortgage channels. For starters, that means Adelaide Bank, but within six months Wizard Home Loans is expected to also market the EFM, and ING Direct is expected to follow Wizard.
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Carter urges NZ banks to consider shared equity schemes
Hon Chris Carter
16 March 2007
Housing Minister Chris Carter today urged New Zealand banks to consider introducing shared equity products similar to that announced by the Adelaide Bank in Australia yesterday. "This scheme seems to be broadly similar to the kind of shared equity scheme the Labour-led government is considering introducing in New Zealand, although the Adelaide Bank appears to be taking a larger share of the profits when a house is sold," Mr Carter said. "I would urge New Zealand banks to also consider offering shared equity products here. They have considerable potential to assist modest income first-home buyers to access high priced metropolitan housing markets. Mr Carter said if private providers introduced shared equity products alongside the scheme being developed by the government, the number of young households that could be assisted in to homeownership would be significantly increased. "Many of our banks have made phenomenal profits from the housing boom over the past five years. Exploring these schemes would be a good way to demonstrate their social responsibility." Details of the Adelaide Bank's product can be found at: www.efm.info
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New loan shares the burden
Sunday Herald Sun
1 April 2007
ANNIE Percy wants to buy an apartment in Melbourne without compromising her lifestyle or selling her Adelaide home. She has opted to take a shared equity mortgage which involves the borrower sharing a stake in the property. With the new loan product, Ms Percy's lender will provide an interest-free loan for up to 20 per cent of the property's value. In return, Ms Percy agrees to give the lender up to 40 per cent of the property's growth in value when she sells or refinances into another loan. For Ms Percy, 34, the loan means she can buy a property of a better quality and higher price than she would otherwise have been able to afford. For many others, the loan means they can buy a property sooner with a smaller deposit. The loan, also known as an equity finance mortgage, allows borrowers to reduce their up-front costs and repayments by up to 20 per cent. So someone who would traditionally take a $380,000 loan to buy a $400,000 property can now have a normal $300,000 loan and an $80,000 interest-free equity finance mortgage. Ms Percy, a physiotherapist, said by having a smaller interest-bearing loan, she would be able to pay more off it. And the interest-free component of her loan would bolster her borrowing power to help her buy the property she wants. "I will be able to buy an apartment that is bigger, or with better renovations or in a nicer group than I would be able to get otherwise," she said. What does she think of having to give some of her capital gain to her lender? "It was not my money in the first place," she said. "And it means I will be making more on this property because it will be of a better value than one that cost less." The loan has been launched by PMI Mortgage Insurance and global real estate funds manager Rismark International in a deal with Adelaide Bank. The chief executive of the Mortgage Industry Association of Australia, Phil Naylor, said equity finance mortgages were helpful in bridging the gap for people who did not have a full 10 per cent deposit, he said. A similar scheme has been launched by the British Government under a $2.5 billion home ownership scheme and the federal Opposition is believed to be studying the concept.
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Equity trade-off for bigger home loans
Sydney Morning Herald
14 March 2007
A NEW mortgage has been unveiled that can boost a home buyer's spending power by a quarter, but the lender keeps 40 per cent of any capital gain. Australia's first shared equity mortgage in mainland capitals was launched by Adelaide Bank yesterday. Under the scheme, up to 20 per cent of the purchase value of a new home is funded by an "equity finance mortgage". In contrast to a traditional loan, the lender gets 40 per cent of any future capital appreciation, or 20 per cent of any capital losses, on the borrower's property as a substitute for a traditional interest rate. Dennis Orrock, from the consumer information firm Infochoice, said it was the most innovative product to hit the mortgage market in the past decade. "It's a product that will have a very broad appeal, especially to middle-class families wanting to upgrade to a bigger home or move closer to work or schools," he said. The chief general manager of Adelaide Bank, Stephen Small, said the product would target first-time buyers lacking the full finances for entry into the home-owner market. "Equity finance mortgages can be used by borrowers to buy homes that are up to 25 per cent more expensive than they might have been able to afford using a traditional home loan," he said. "Equity finance mortgages can also be used to help existing home owners lower their current monthly mortgage repayments by more than 20 per cent, reducing their ongoing debt servicing costs," Mr Small said. The new mortgage was developed with a real estate fund manager, Rismark International, which developed and patented the product. The equity finance mortgage is based on recommendations made to the 2003 Prime Minister's Home Ownership Task Force, chaired by Malcolm Turnbull - who is now the federal Environment Minister - before he entered Parliament. The governments of Victoria, South Australia and Western Australia have announced shared equity schemes. Last week Labor's housing spokeswoman, Tanya Plibersek, said it would consider a federal government role in shared equity schemes to assist low-income earners enter the housing market.
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New mortgage cuts costs, profits
The Australian
14 March 2007
WHAT is said to be the most innovative mortgage to hit the market in the past 15 years promises to cut the cost of buying a house by up to 20 per cent -- but the spoils will have to be shared with the bank. The Adelaide Bank/Rismark Equity Finance Mortgage is the nation's first such commercially available loan, although state governments have been exploring similar schemes to help low-income families. "Our research shows that Australian homeowners do not like the idea of the ownership process being polluted by others owning their home, so the borrower retains 100 per cent ownership of the home at all times, as well as 60 per cent of any capital appreciation," said Chris Joye, managing director of Rismark. "Any increase in the value of the home related to renovations carried out during the loan would also remain theirs." The target market is first-home buyers who can reduce their upfront costs by 20 per cent, existing homeowners who want to upgrade to a property that they would otherwise not be able to afford and people refinancing to reduce repayments. Mr Joye said shared equity mortgages were equitable for customers because the lender shared the rewards and the risks. "The borrower would retain 60per cent of the capital appreciation of their home and in most cases will not pay for capital loss," he said. Denis Orrock, of independent loan researcher Infochoice, said it was "the most innovative type of lending product" in 15 years.
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Equity mortgage revolution
Today Tonight
Channel Seven
It's never been harder to buy a house in Australia, but now a new-style mortgage is offering hope to first-time buyers and investors alike. Just putting a roof over your head can soak up more than a third of your weekly income, and even then you can't buy where you want because you just can't afford it. But what if you had a silent partner, who paid 20 per cent of the cost, and you didn't pay one cent in interest on that portion of your loan? It's called an equity finance mortgage, the latest attempt to make it easier for people to get a foot on the housing ladder. "Potentially it's the most innovative product to hit the mortgage market in at least the last decade," said Dennis Orrick from consumer advisory group Info Choice. For more information on Equity Finance Mortgages, click here: www.efm.info
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Derivatives for house prices
27 February 2007
The Australian
A NEW over-the-counter market will allow institutional and retail investors to punt on the direction of property prices using derivatives. In a deal announced yesterday, real estate investment group Rismark International and property data company RP Data agreed to form a residential price derivatives market with global derivatives broker GFI Group. Underlying the market is a new set of RP Data-Rismark real estate market indexes, including a so-called "hedonic" index which will provide details such as the number of bedrooms and bathrooms, whether the property has a pool and its land size. A Moody's report said it was the first time that regularly published hedonic indexes would be commercially available in Australia: "The suite of indexes represents a significant improvement in the quality of housing price statistics in Australia." In particular, "the attributes data seems to be of considerably higher quality than that of competitors", such as Residex or Australian Property Monitors.
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Index points to home derivatives
27 February 2007
Australian Financial Review
A new house price index claims to have swept aside the competition, with a data series timely and accurate enough to support a derivatives market for the $2.7 trillion of residential real estate assets in Australia. RP Data and Rismark International, the creators of the series, say it has the potential to pave the way for new financial tools to release equity in the housing sector as ageing baby boomers reach retirement - and hedge risk by developers, financiers and mortgage insurers. Jointly releasing the data series was global derivatives broker GFI Group. The group has signed an agreement with Rismark and RP Data to broker derivatives products on the back of the index, which would initially support five key indices. Moody's, which produced a report on the indices, said the series was a "significant improvement in the quality of housing price statistics available in Australia".
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Place your bets all the way home
27 February 2007
The Age
INVESTORS will soon be able to bet on movements in Australia's $2.7 trillion worth of residential real estate through a new derivatives market. The launch of the Australian institutional market was confirmed yesterday, with data provider RP Data and researchers Rismark announcing they had entered into an agreement with GFI Group, which is listed on the Nasdaq market in the US, to create an "over-the-counter" property derivatives market. A commissioned report from Moody's Economy.com found that the RP Data-Rismark indices were a "significant improvement" on existing data. Mr Moore said it was crucial for the new RP Data/Rismark indices to be representative of the underlying residential market. "Without the integrity of the indices we won't have a derivatives market."
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Tighter research focus on housing
27 February 2007
Herald-Sun
REAL estate research group Rismark International and property data company RP Data have formed an over-the-counter (OTC) residential price derivatives market with broking house GFI. The property derivatives market will use residential pricing indices developed by RP Data and Rismark. The RP Data Rismark Index will provide much-needed monthly and quarterly reports on Australia's housing markets. "House price derivatives will be useful for investors who want to gain, diversify or hedge their exposure to residential property, without the complexities associated with transacting in the underlying physical market," GFI senior managing director for Asia Pacific Jurgen Breuer said.
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LJCB buys into Rismark's shared equity model
18 October 2006
Australian Financial Review
The LJCB Investment Group has acquired a major stake in property funds management group Rismark International and has taken a cornerstone position in its latest residential property fund. The Melbourne-based group, associated with part of the Liberman family, has invested $25 million in the fund and the group's chief executive, Greg Woolley, has joined Rismark's board. Macquarie Bank also remains as an investor and partner to the fund manager as it looks to set up its revolutionary equity finance mortgages in Australia. Rismark holds six patents relating to design and management of the mortgages and its business processes. Separately, Adelaide Bank's head of strategic development, John Powell, has joined Rismark International as head of wholesale funding. Mr Powell was a member of Adelaide Bank's executive committee for six years, reporting directly to chief executive Barry Fitzpatrick.
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Shared equity home loan fund a family affair
18 October 2006
The Australian
MELBOURNE'S Liberman family has entered the fledgling shared equity home loans business through a $25 million investment in an unlisted fund recently launched by Macquarie Bank-affiliated Rismark International. Its LJCB Investment Group has bought into the first of several planned funds from which Rismark hopes to corner the shared equity home loan market. Government's 2003 Home Ownership Task Force, which was led by Chris Joye, a Rismark principal. As well as its $25 million Rismark Active Property Trust (RAPT) investment, the Liberman family's LJCB investment group has also acquired a 25 per cent share in the real estate funds management business, equalling the 25 per cent held by Macquarie Bank. Among Melbourne's wealthiest families, the Libermans recently sold their 161 Collins Street office building for about $250 million, but remain one of the city's largest property owners. Rismark also announced yesterday that former Adelaide Bank head of strategy John Powell would join it as head of wholesale funding.
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RP Data and Rismark to reform property pricing info
24 March 2006
Sydney Morning Herald, AGE, The Australian, Financial Standard News
RP Data, Australia and NZ’s biggest property data provider, and Rismark International, a real estate funds management JV with Macquarie Bank, have announced an Exclusive Strategic Partnership to rectify house pricing measurement inaccuracies. Under the five year partnership agreement, RP Data will work with Rismark to develop property price indices and automated valuation tools that are comprehensive, accurate and uniform. Graham Mirabito, RP Data’s chief executive officer, said, “In recent times there has been a great deal of public criticism in the media and from the RBA about the quality of existing house price indices. Given the importance of the residential real estate asset-class to Australian families and policymakers, we saw a need and an opportunity to respond.” “With Rismark we have a partner that possesses unique residential real estate research expertise that has been developed to service the large institutional investors in Rismark’s funds in line with the quality of analysis that they expect to see for other asset classes, such as equities and bonds,” he added. Rismark’s executive chairman, Richard Facioni, said, “Rismark has accumulated deep expertise in quantitative property analysis, and we believe that this exclusive partnership with RP Data will place us at the vanguard of global real estate research. We expect the alliance to yield significant benefits to both investors in our funds and the many users of RP Data’s property information products.”
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How to buy with others' money
11 March 2006
The Australian
THE costs of home ownership could be cut by 20 per cent under the terms of a radical zero-interest "equity finance loan" to be launched through major lenders from July. The idea for the loans arose in work carried out for Prime Minister John Howard's 2003 Home Ownership Task Force. Christopher Joye, who led the taskforce, now works as an executive director with Rismark, which has patents on the equity finance mortgage (EFM). For first home buyers who can't afford to buy a property and want to reduce upfront costs by 20 per cent (lesser or deposit, nil mortgage insurance, nil interest) the attractions are obvious. The product will also appeal to an ambitious, aspirational market which wants to buy a home 25 per cent more expensive than they otherwise could afford "It allows people the option of upgrading to a nicer, more expensive suburb -- if, for example, they wanted to be nearer their child's school," says InfoChoice general manager Denis Orrock. "Equity finance mortgages give asset-rich, income-poor retirees who want to access an equity release mechanism a safer option than a reverse mortgage," says Rismark executive chairman Richard Facioni. "In contrast to reverse mortgages, EFMs will always leave retiree borrowers with at least 60 per cent of the net equity in their home, irrespective of how high interest rates are, how fast property prices grow, or how long they live in their home."
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Rismark signs deal with PMI
9 March 2006
Investor Weekly
PMI Mortgage Insurance (PMI) has signed an exclusive strategic partnership deal with Rismark International to insure Rismark's equity finance mortgage (EFM) products. PMI chief executive officer Ian Graham said PMI had selected Rismark over a number of other product providers presented to them because of the depth of research behind the EFMs and the likelihood of a far quicker time to market. We've had a number of approaches from the promoters of various forms of products which promise similar outcomes, but it was quite clear to us from early on that Rismark were significantly ahead of the pack at that time and now, Graham said. We have been very impressed with their research both domestically and overseas and are confident that the products will be available some time in the third quarter this year. And the unique feature of the Rismark shared equity scheme is the inclusion of downside protection.
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Partners take the lead on shared-equity mortgages
7 March 2006
Australian Financial Review
Mortgage insurer PMI yesterday unveiled a strategic partnership with mortgage finance group Rismark International that will give the pair a leg up in the emerging market for shared-equity mortgages in Australia. PMI will develop mortgage insurance and credit enhancement products for Rismark to smooth the introduction of these revolutionary mortgages in Australia. PMI chief executive Ian Graham said Rismark "has progressed much further than any of the others . . . they're way ahead of the pack". Although the equity-finance mortgage could work without mortgage insurance, having it makes financing the mortgages much cheaper. Potential competitors of Rismark must now turn to Gemworth or offshore alternatives for backing. PMI has the dominant position in the residential mortgage-backed securities market and Mr Graham said the products could be funded through a securitised structure. Rismark executive chairman Richard Facioni said he was pleased to have forged a strategic partnership with one of the world's largest mortgage insurers. Rismark will be the wholesale funder and portfolio manager of the mortgages, while licensing its intellectual property for use by banks. The Australian Patent Office recently awarded Rismark patents over its products and the methods by which mortgages are distributed and securitised. "Rismark has a sophisticated, aggressive and cutting-edge patent strategy," Mallesons Stephen Jaques partner John Swinson said.
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MacBank and Rismark
vow to protect their turf
22 December 2005
Australian Financial Review
Rismark International and Macquarie Bank have
signed up another major bank to distribute their
equity finance mortgages and have vowed to pursue
lenders through the courts if they infringe
on their concept. The pair are wrapping up a
roadshow to raise $1 billion from superannuation
funds to back their mortgages, in which investors
will share in the capital gains and losses on
homes. Separately, Rismark has worked with law
firm Mallesons Stephen Jacques and patent attorneys
Fraser Old & Sohn, to develop a strategy
to protect its intellectual property assets.
It also has aggressive firm Atanaskovic Hartnell
on retainer to pursue breaches. This hard-line
stance means that potential entrants to the
market, such as the big four banks locally or
investment banks looking to copy the concept
offshore, will probably need to deal with Rismark.
Rismark's inventions relate to the origination,
processing, servicing, securitisation and portfolio
management of equity finance mortgages. In a
2001 case involving funds management giant State
Street, the Federal Court found that such processes
could be patented. Rismark has elevated former
Macquarie Bank executive Richard Facioni to
executive chairman. The founder of Trowbridge
Consulting, John Trowbridge, has been appointed
chairman of Rismark's global research advisory
board.
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Rismark executive
appointments
24 November 2005
Money Management Magazine
The former chief operating officer and company
secretary of Intech Investment Consultants,
Sandra Donnarumma, has joined Rismark International
as its chief financial officer. Donnarumma brings
a solid background of both international and
domestic industry experience to Rismark. Before
Intech, Donnarumma held several senior roles
with Deutsche Bank in London and Sydney, including
head of offshore emerging markets, head of global
exchange services, regional (Asia) head of global
exchange services, and financial controller
of global exchange services. Rismark also established
a Global Research Advisory Board with Professor
Barry Nalebuff, Professor Joshua Gans, and Professor
Alex Frino as its founding members.
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Backing the burbs
5 November 2005
Simon Hoyle
Sydney Morning Herald
Australia's owner-occupied residential property
market is worth an estimated $2800 billion but
until now it's been an investment market all
but closed to institutional investors. If institutional
investors, including superannuation funds, wanted
to invest in owner-occupied residential property,
they had to do it indirectly. They could assemble
portfolios of residential properties and rent
them out, but tenanted property is not quite
the same thing as owner-occupied property. They
could lend money to people to buy a home, but
mortgages are fixed-interest securities, and
there's no way a mortgage lender can participate
in the capital gain on an owner-occupied property.
Investing in property developers and builders
is, likewise, a derivative exposure. So
investors in superannuation funds, while they
might own their own homes already, have been
missing out on an important source of potential
capital growth and an asset class that could
help diversify their retirement saving portfolios
and hence reduce risk. A solution to the problem
has emerged from an unlikely quarter: the 2003
Prime Minister's Home Ownership Task Force.
Christopher Joye, who led the task force and
produced a 378-page report on the subject, came
to the conclusion that something was needed
to bridge the gap between a ready source of
funds - capital markets - and home owners. Joye's
company, Rismark International, has established
a joint venture with Macquarie Bank to source
funds from capital markets and package them
into a product that can be sold to home buyers.
The Rismark team includes, among others, Richard
Facioni, a former executive director of Macquarie
Bank, Russell Aboud, a director of the Australian
Stock Exchange and chairman of Ord Minnett,
Sandra Donnarumma, previously the chief operating
officer of InTech, Glen Bertram, a former UBS
executive, and John McGee, a mortgage market
expert. The vehicle Rismark and Macquarie have
put together is the typographically tricky ARES
fund: Advanced Real Estate Solutions fund. The
fund intends to raise $1 billion from institutional
investors, which it will then package up and
provide to home buyers as EFMs.
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Equity mortgage trust
ready to go
20 October 2005
Ben Wilmot
Australian Financial Review
Macquarie Bank and Rismark International yesterday
confirmed plans to list a residential real estate
fund in the next three to five years, as they
kicked off a roadshow to raise $1 billion from
superannuation funds. The Advanced Real Estate
Solutions Fund will invest in 17,000 equity
finance mortgages sourced across major Australian
markets. They will have a total face value of
$1.05 billion, giving the fund a total exposure
of $5.25 billion in Australian residential real
estate. The novel fund will target an ungeared
internal rate return of more than 13 per cent
a year after fees. Looking ahead, Rismark is
targeting an initial public offering on the
Australian Stock Exchange in the next three
to five years, the chairman and former Macquarie
Bank executive director, Richard Facioni, said.
Rismark has also set up a global research advisory
board including Yale economist Barry Nalebuff,
University of Melbourne economist Joshua Gans
and University of Sydney finance professor Alex
Frino.
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Insto’s gain
access to residential real estate
Bill McConnell
Investor Weekly
Institutional investment managers and superannuation
trustees will from this week begin receiving
formal offers to participate in the $1 billion
global wholesale capital raising accessing the
Australian residential property market. The
Advanced Real Estate Solutions (ARES) Fund,
managed by Rismark International and has been
established to provide institutional investors
with enhanced capital returns flowing from owner-occupied
property on a high-growth, low-volatility and
largely uncorrelated basis. Rismark’s
research highlights the returns to residential
real estate have outperformed, on a risk-adjusted
basis, Australian equities, 10 year Government
bonds and Listed Property Trusts over the previous
23 years. “We believe the recent equity
market volatility will highlight the strong
risk-return characteristics of residential real
estate as one of Australia’s best-performing
and most resilient asset classes, which will
be accessible through the ARES Fund,”
Rismark chairman Richard Facioni said. Rismark
also announced it had appointed former chief
operating officer and company secretary of Intech
Investment Consultants Ms Sandra Donnarumma,
as its Chief Financial Officer.
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Radical thinking to
shake up the mortgage market
22 September 2005
Ben Wilmot
Australian Financial Review
The cosy world of Australian home lending could
be in for a big change if an innovative new
way to spread risk and reward takes hold, writes
Ben Wilmot. A radical equity finance mortgage
scheme now being marketed to institutions could
slice the cost of a mortgage. A venture between
Rismark International and Macquarie Bank aims
to raise $1 billion from superannuation funds
to create a pool of money to invest in equity
finance mortgages. Liberal MP Malcolm Turnbull,
a supporter of the idea since its inception
as a Menzies Research Centre paper, says the
concept has a number of potential applications.
"It does have the potential to make housing
more affordable . . . it also has some advantages
at the other end of the spectrum," he says.
"The ability for people who are older .
. . the empty nesters who have paid their mortgage
to realise some of the value in their home without
taking on additional debt." One of Australia's
foremost finance academics, New York University
Stern School of Business professor of finance
Stephen Brown, who served on the home ownership
taskforce, which fleshed out the equity finance
mortgage concept, is enthusiastic about Rismark's
plans. Brown says the Australian banking industry
is known for a general lack of innovation and
the chief virtue of Rismark's product is that
it will breach the barriers that have so far
protected the nice and cozy world of Australian
housing mortgages. "If this succeeds, it
will be the mouse that roared, and Rismark will
be the next Westfield, an example of how Australian
real estate technology can match the best that
the world can offer and prevail," Brown
says.
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$1 billion real estate
fund hits market
September 2005
Bill McConnell
Investor Weekly
In a global first, Rismark International, backed
by a 50 per cent equity investment from Macquarie
Investment Banking Group, is about to unveil
a $1 billion residential real estate fund offering
a new asset class for Australian institutional
and superannuation investors. Russell Aboud,
a Rismark principal and key strategic advisor,
said: "One of Rismarkís strengths
is the rigour and sophistication of its investment
and portfolio construction systems, which draw
on vast amounts of information in order to compute
the ARES Fundís optimal portfolio weights
to specific geographies, dwelling types and
consumer cohorts."
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Fund breaks mortgage mould
22 August 2005
Ben Wilmot
Australian Financial Review
The traditional Australian mortgage could change
radically with the launch
today of a $1 billion Macquarie Bank-backed
fund that will offer a new style
of loan in which banks become something like
part owners of the home,
sharing in capital gains and losses. Macquarie
Bank and a company called
Rismark International will announce the fund
and promote it to
superannuation institutions as a way for them
to invest efficiently in
residential property. The fund plans to start
offering the so-called equity
finance mortgages in early 2006 through major
lending banks, and has plans
to place 17,000 equity loans across $5 billion
of residential property in
major cities around Australia in the first year.
Ord Minnett chairman
Russell Aboud is a founding investor in Rismark
and has acted as an adviser
to Rismark. The former head of Macquarie Bank's
principal transactions group
Richard Facioni is now Rismark's executive director.
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Buy half a house -
and rent the rest
23 May 2005
James Button and John Garnaut
Sydney Morning Herald
First, Australians were given $7000 to get into
the housing market, then state governments exempted
first-time buyers from stamp duty if they bought
a property under a certain price. Now, another
Australian concept to make homes more affordable
might have influenced a British plan to provide
up to 400,000 first-time buyers with cheap mortgages.
Under the plan, which will cost hundreds
of millions of pounds over three years, buyers
who could raise mortgages for half to three-quarters
of the cost of a home would be able to "rent"
the other share of the property, at a rate of
no more than 3 per cent. The plan could cut
average monthly repayments on a £200,000
($480,000) home by up to £372 (about $900)
a month. Equity in the part of the home not
owned by the buyer would be split between the
government, banks and perhaps house-building
companies. In Australia, the federal MP Malcolm
Turnbull said the British Chancellor, Gordon
Brown, had been influenced by a report for the
Liberal Party's Menzies Research Centre. Two
years ago, the centre pressed for private-sector
investment in residential housing to enable
more first-home buyers to break into the market.
The report's primary author, Christopher Joye,
has established the company Rismark International
to commercialise the concept, in collaboration
with two large investment banks. "It's
interesting to see the influence of Christopher
Joye's work so far," Mr Turnbull said.
Mr Brown told the London Observer the scheme
would put home ownership within reach of thousands
of people. "People who couldn't afford
the full price of a home can afford the partial
price . . . and gradually ramp up their stake,"
he said. But, as with the Howard Government's
first-home buyers grant, critics say the move
will help only the wealthiest potential home
owners and fuel an overheated property boom
by increasing the number of buyers.
A house divided stands OK
23 July 2003
By Christopher Joye
The Australian
ON June 6 this year, I delivered a 378-page
report to Prime Minister John
Howard that advocated a variety of demand and
supply-side approaches to
radically reducing the costs of home ownership
in Australia. At the heart of
that effort lay the belief that it is time capitalism
developed a more human
face. For centuries now, businesses in need
of funds have had access to both
debt and equity. Yet for households wanting
to expand, mortgage finance has
been their only alternative. In an attempt to
rectify the asymmetry between
corporate and consumer capital markets, we recommended
offering Australian
families the option of using both debt and equity
finance when purchasing
their properties. In this way, aspirants could
fund their housing needs with
both a mortgage and a passive institutional
partner which contributes equity
(via a synthetic debt contract) to the dwelling
in exchange for a claim on
the prospective price movements, with no other
monetary payments made
between them. Importantly, occupiers would retain
virtually all of the
decision-making rights free and unencumbered,
just as in traditional
markets.
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Dream of Cheaper
Homes Now in PM’s Hands
6 June 2003
John Garnaut
Sydney Morning Herald
The cost of buying a home could be slashed by
up to 30 percent under radical financing proposals
devised by the Home Ownership Task Force. The
taskforce, commissioned by the Prime Minister,
John Howard, says it makes no sense for families
to tie up a third of their wealth in “one
highly illiquid [difficulties to sell] and very
risky asset”. It will present its report
to Mr Howard today. The report says it is “absolutely
scandalous” that modern financial instruments
are unavailable to home owners, blaming a misconception
that home ownership must be an “all-or-nothing
venture”. Its core proposal is an equity-sharing
arrangement with specialist financial institutions,
which would include managed funds that invest
only in residential housing. It says these institutions
could play a big role in getting young homeowners
out of the “rent trap” by accelerating
the transition to home ownership. “The
report demonstrates that by allowing home owners
to use equity as well as debt finance, home
owners will benefit from a lower cost of home
ownership and institutions will be able to access
an enormous…asset class,” said
the taskforce’s chairman and the Liberal
Party treasurer, Malcolm Turnbull. Conducted
through the party's Menzies Research Centre,
the report says different forms of equity finance
would also greatly increase disposable income
and wealth at retirement. Upfront costs of home
ownership and subsequent repayment costs would
fall 30 percent, while risks of loan default
would fall dramatically. Equity finance could
involve co-ownership of properties, with the
managed fund (or other form of financial institution,
such as a bank) taking up a “silent”
stake. This would leave households to make decisions
involving the property, such as when to renovate
or sell. The report also says the silent investments
could take the form of hybrid debt and equity,
which would reduce aversion to co-ownership.
Its primary authors, Christopher Joye and Andy
Caplin, say they believe equity finance will
eventually become standard industry practice.
The report says one in four households lose
money when they sell their home, after allowing
for inflation, stamp duty and other transaction
costs. “It makes no sense whatsoever for
the average Australian family to have to tie
up over two-thirds of all their wealth in the
world in one highly illiquid and very risky
asset: the owner-occupied residence,”
it says.
