Is Private Credit Australia’s New Megatrend?
Kanebridge News
Share Button

Is Private Credit Australia’s New Megatrend?

And what it means for the property market.

By Paul Miron
Mon, Oct 4, 2021 11:10amGrey Clock 5 min

OPINION

The modern-day world we are living in is growing increasingly high-tech and fast-paced. Consequently, Investors are faced with much more pressure, decisions, choices, and information than ever before.

Many years ago, investor demi-gods, such as Warren Buffet, at the start of their careers, sent out handwritten letters to listed companies requesting financials and prospectuses, which took weeks to receive.

In today’s efficient markets, where we all have equal access to an abundance of information at our fingertips, new information is instantly distributed and analysed virtually instantaneously by all market participants, thus making it near impossible to gain an advantage over the market.

What techniques are investors turning to today to gain meaningful glimpses of the future with the hope of investing more confidently?

 

What Is a Megatrend?

Megatrends are long-term trends transforming the way we live, work, and play. The driving forces are caused by macroeconomic changes, technological gains, a shift in migration, and social changes.

To understand the full power of Megatrends, one must look to the past.

A prime example is Bill Gates’ vision that a personal computer could be a powerful tool used by everyday households. Interestingly Gates was not the only visionary with the same idea at the time; the difference was his superior business acumen and the pivot in building the Microsoft operating system to enable this technological transition from concept to reality.

When seeking the insights of Megatrends for success, It is critical to acknowledge that the market is a collective of people, and as a result, markets tend to boom and bust while inevitably moving in traditional cycles.

My favourite Mark Twain once said, “history does not repeat itself, it rhymes.”

It is impossible to predict the timing of the next boom or bust consistently. Still, you can prepare yourself through diversification and understanding that certain asset classes will follow predicted behaviour over time.

So, what are some of the Megatrends that Msquared can see on the horizon being a specialist direct commercial mortgage fund manager?

 

Interest rates internationally

Indeed, we are living through uncharted territory regarding low-interest rates globally near-zero official interest rates set by most Central Banks globally, primarily to combat the negative economic impacts of COVID -19 now and into the foreseeable future.

In Australia, the Reserve Bank’s primary role is to set official interest to a level to stimulate both consumers and business activity while not allowing for the market to overheat with higher inflation. The bank’s traditional targeted inflation band is 2%-3%. If longer-term inflation increases beyond 3%, interest rates will reluctantly need to increase to place downward pressure on asset values.

That said, with the official cash rate at 0.10% p.a., the by-product of cheap credit has pushed up the value of assets such as real estate and shares, far beyond most expectations, despite being in the middle of one of the most economically challenging times due to the COVID-19 pandemic.

The five and ten-year bond rates are presently sitting at circa 0.63% and 1.18%, respectively. The combination of the most brilliant economists and bond traders believe that the official cash rate over five years may only go up by 0.5% and, possibly, 1.1% over ten years, which is essentially negligible.

The current bond rates infer that we will be operating in a very low-interest environment for a very long time. Accordingly, the expectation is that asset prices will likely keep going up until they become unaffordable or investors stop seeing any value in holding those assets.

Therefore, the Megatrend that we envisage is a continual and gradual yield compression (decrease in returns) for property, shares, and other tradable assets.

The free cash flow from these investments will continue to contract further, making it even harder for investors to generate the appropriate level of income required, especially for SMSF trustees and self-funded retirees.

The main two events that would change this outlook would be higher inflation, thus pressuring Central Banks to increase interest rates sooner, or an out of sequence market correction/crash bringing about loss of confidence due to an unexpected event.

 

 

Property

Regular readers will know my view regarding property’s resilience and its contribution to the overall health and stability of the economy.

The Australian love affair with property and homeownership is now at 67%, due to the highest net overseas migration for the period leading up to the COVID-19 outbreak and together with the supply constraints that have been added due to an inefficient planning process. As discussed in my June article, ‘Australia Is The Lucky Country’, Australians are now the wealthiest people per capita globally.

The price gap between units and detached houses has widened to the most significant gap in recorded history.

The Megatrend is that we believe that this will be reversed, however, with a twist. It is our view that the demand and price growth for the luxury, larger apartments that offer superior amenities will not only be highly sought after but will also become the best performing type of property within its asset class.

With baby boomers’ increasing requirements for downsizing accommodation in combination with the proposed restart of skilled affluent migrants coming to Australia at the end of the year, the demand for the high-end luxury apartments segment will only increase.

 

Australian Private Credit coming into Vogue

Australia, compared to the US, European, and other Asian counterparts, is lagging substantially behind when it comes to these ongoing global Megatrends.

Just over 70% and 46% of all commercial loans are written in the US and Europe by private credit providers, also known as non-bank lenders; In Australia, it is a mere 8%.

This class of investment offers the ability for investors to have ownership of the mortgage, earn more than 6% p.a. while having the security against real property. This investment generates regular income with a proven track record in preserving investor capital in any market cycle and volatile markets.

The investors in US receive returns of circa 3% p.a. due to the maturity and competitive nature of the overseas private credit market. In comparison, this is less than half of what is offered by Msquared for a similar style of investments, as our returns start from 6.50% p.a.

Considering we are operating with the same close to zero interest rate environment globally, this is significant.

We believe that demand from Australian commercial borrowers to have options other than funding through our major banks will continue to grow as reflected by the funding gap, last reported to be over $119b.

Due to ongoing government regulations and interventions, the ability of private credit providers to offer bespoke solutions, ease of capital, service and speed, private credit providers will continue to grow.

Investors are slowly learning the benefits of investing indirect commercial mortgages and seek out these opportunities. Institutional investors weigh their support into the sector both due to the lack of ability to generate consistent regular income from other investment classes and due to recognition of resilient qualities offered by real property, enabling asset preservation within the portfolio.

As the market matures, the appreciation for contributory funds will increase. Savvy investors will seek higher transparency, ethical investment requirement, and a direct line of sight of the underlying security on offer while having the added benefits of superior returns rather than a pooled fund.

Contributory funds allow more control to the investor by having these choices. The function of a contributory fund is that each investment is a separate ring-fenced opportunity, whereas pooled fund, as its name indicates, has many mortgages within one investment vehicle.

The contributory fund places the investor in the driving seat, allowing them to create their personalised unique investment portfolio in this asset class.

The Megatrend is that there will be a structural change on how and who will provide commercial loans in Australia, reflecting the path experienced in the US and European debt markets.

 

 

Paul Miron has more than 20 years experience in banking and commercial finance. After rising to senior positions for various Big Four banks, he started his own financial services business in 2004.

MSQ Capital

msquaredcapital.com.au



MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Property
Carved in Stone
By Robyn Willis 05/02/2025
Property of the Week
Burleigh’s New Architectural Gem: A Contemporary Coastal Masterpiece
By Kirsten Craze 31/01/2025
Property of the Week
A RARE GEM: COVETED HARBOURSIDE HOME FOR SALE IN LAVENDER BAY
By Kirsten Craze 24/01/2025
Carved in Stone

The enduring appeal of marble has gone into overdrive as designers explore the beauty of coloured stone to create truly inviting and indulgent interiors.

By Robyn Willis
Wed, Feb 5, 2025 4 min

Like all design movements, the return of marble to interiors started quietly enough with the rise of ‘greige’ as the dominant colour palette. A warm version of grey, for a while there, you could barely step into a well-considered residential space without being confronted with the ubiquitous neutral tone.

However, to be successful, this look depended on texture, layering and patterning to provide truly heartfelt spaces with genuine depth. And so Calacatta and Carrara marble entered the room, literally making itself at home in kitchens, bathrooms, and living room hearths, as well as in a myriad of accessories and furniture from small bowls and coasters to coffee and dining tables.

As greige made way for a return to colour in interiors, in recent years designers have turned their attention to bolder choices, moving on from the classic tones of Calacatta, Carrara, and Pietra marbles to Verde Indio, Spanish Gold, and Calacatta Viola.

Inspired by the raw beauty of the site, Mim Design used marble extensively in this Mornington Peninsula home Mim Design

Not that there is anything new about marble. First documented for use in construction in 3rd century Greece BCE, with evidence it was also used in ancient Turkey and Rome, it was originally chosen for its strength and beauty, as well as its accessibility, extracted from quarries using hammers and wedges and removed using pulleys, levers, and winches rather than the more difficult process of mining. While extraction methods have improved, especially in recent years, the nature of this popular stone is unchanged.

A metamorphic rock composed mostly of calcite, it is formed when limestone is subjected to heat and pressure. When the calcite in the limestone recrystallises, it forms a rock that is a mass of interlocking crystals, creating what we know as marble.

In Melbourne’s St Ali & The Queen cafe and bar, Studio Tate teamed marble and timber to transition from day to night.

While many countries, including Australia, have marble deposits, about half the world’s supply is sourced from just four countries—Spain, Italy, India, and China. Strong enough to endure extended use, it is also soft enough to be relatively easy to carve while its natural beauty allows it to be polished and honed, giving it a glow that adds depth—and a sense of luxury—to any space it inhabits.

Greg Natale marble accessories deliver on style.

Australian designers have been quick to embrace the use of marble, offering, as it does, the opportunity to create truly unique interiors. Creative director of Mim Design, Emma Mahlook, says while budget is always a consideration, a greater variety of marble has become easier to source in recent years.

“Coloured stones provide an opportunity to create distinctive and striking spaces,” she says. “As such, we are finding that there is a slight shift to bolder and braver choices of coloured stone than the traditional whites and greys.”

For homeowners interested in creating distinctive, outstanding spaces, it is hard to beat, with each piece different from the other.

“No batch of stone is ever the same, which makes it so unique and such an interesting and visually appealing product with colours, textures, and patterns that are sometimes as complex as intricate works of art,” says Mahlook.

She cites a recent commercial project her studio realised for Enoteca Boccaccio, an exclusive Italian restaurant in the heart of the Melbourne suburb of Balwyn, where she specified a selection of coloured marbles to create an intimate and luxurious dining experience that looks to the past, as well as the future.

“The choices of natural stone in Enoteca Boccaccio, which featured marbles Rosso Levanto and Carrara as well as a granite called Domino, were selected to reflect Italy’s streets and embody genuine durability and commitment to the art of preservation,” says Mahlook. “Rosso Levanto and Carrara are archaic marbles with such strong significance connecting to Italy’s rich heritage.”

Colour and Communications Manager at Dulux, Andrea Lucena-Orr, says the interest in coloured marble in Australian design has its origins in more transient hospitality spaces like bars and restaurants, where design is traditionally riskier.

“Typically, it starts in hospitality and commercial environments,” she says. “You tend to get it in high-end homes because it is expensive, but it’s beautiful.”

“That whole natural palette is a huge phenomenon—people are celebrating those imperfections in patterns and shapes now.”

Because no two slabs are the same, Mahlook says there’s the ability to create truly distinctive, personal spaces for clients seeking genuinely idiosyncratic interiors.

“The movement towards coloured natural stones reflects a broader cultural shift towards individuality, sustainability, and innovation in design and architecture,” she says.

For those falling under its spell, Director of Studio Tate, Alex Hopkins, says marble pairs well with other materials such as timber and looks beautiful indoors, particularly in kitchens and bathrooms. However, she cautions there are some things to consider before specifying it at home.

“To ensure marble remains a timeless choice rather than a fleeting trend, we recommend using it selectively and pairing it with contrasting materials,” she says. “It’s crucial to understand its maintenance demands and consider the overall budget, including installation and upkeep costs.”

While it is susceptible to staining because of its porosity, Hopkins says using marble sparingly, for example, in a powder room vanity, can minimise maintenance.

“Different finishes, like honed surfaces, can also help reduce the appearance of wear,” she says. “Working with experienced designers or specialists ensures the marble chosen fits both the aesthetic and functional needs of your space.”

Professionally applied sealants can also make staining less likely.

For those bold enough to take the plunge, Hopkins says the rewards are great.

“Its diverse colour palette and natural veining offer a unique aesthetic that other materials can’t match,” she says.

MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Property of the Week
Property of the Week: 26-27 Olola Rd, Vaucluse
By KIRSTEN CRAZE 13/12/2024
Lifestyle
TikTok Refugees Find an Alternative—in China
By SHEN LU AND HANNAH MIAO 14/01/2025
Property of the Week
Burleigh’s New Architectural Gem: A Contemporary Coastal Masterpiece
By Kirsten Craze 31/01/2025
0
    Your Cart
    Your cart is emptyReturn to Shop