In defence of property bonds

Property bonds are hot at present, but not universally popular. Money Managers puts the case for bonds.

Tuesday, March 9th 1999, 12:00AM

Rate chasing is one of the hottest investment trends in town at present as interest rates continue to hover around historically low levels of between 4 per cent and 5 per cent.
One of the key winners in this game has been property bonds that have been offered to investors with yields of, typically, more than 12 per cent.
The money raised by these offers is generally used to fund the proportion of a property development which banks won't fund.
While investors have lapped up millions of dollars worth of property bonds, seemingly without question, others are sounding warnings about the security of these investments.

The main concerns raised are that these bonds often are unsecured, so if things go wrong the bond holders are at the end of the creditors' queue and unlikely to see any of their money back and they are not easily traded on the secondary market.
However, Money Managers, which has promoted many property bond offers over the years says if proper due diligence is done at the outset bonds are safe.
Money Managers marketing director Alasdair Scott uses the $4.5 million Pacific Properties (Oxford) Limited offer it did with organising broker UPC Securities as an example.
Investors have received their capital and accrued interest on this bond on the minimum settlement date as set out in the prospectus, he says.
"Despite some of our competitors labelling these 'junk' bonds, investors’ capital will be returned along with extremely attractive yields, provided adequate due diligence is conducted before offering the issue to investors," he says.
With the entry of more promoters of this type of investment in the market, Scott concedes there may unfortunately be some dissatisfied investors. "Eventually one of these issues could run into trouble. Insufficient due diligence, greed by the issuer, or not enough care taken in the early stages of a bond issue would be the likely cause," he says.
His advice to potential investors is: "Provided you satisfy yourself you are dealing with a reputable company, who has a proven track record in this type of investment, you are certainly minimising a significant majority of the risk involved. Trusting the adviser who is recommending the bond is also vital".

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