How to monetise untapped capital locked in residential property portfolios

Australian homeowners have enjoyed unprecedented equity growth over the last decade with data from 2004 to 2021 showing an increase of 5% year on year[1]. With such vast amounts of wealth left idle, there is an obvious need for a solution which will allow residential property portfolio owners to tap into their growing equity and realize its full potential.

At Futureproof, working in collaboration with one of the foremost, global thought leaders in the technology and innovation space, one such solution is our soon-to-be-launched, next generation financial instrument – the Equity Preservation Mortgage™. 

In previous articles we have outlined how the Equity Preservation Mortgage™ can be used in the retail market by retirees and pre-retirees wanting income from their individual residential properties. Supported by the fact that 70% of retirees entering aged care own their own home[2]. By employing the Equity Preservation Mortgage™, retirees will be able to responsibly, and with low-risk, monetize their largest asset in order to secure long-term income or funding to cover their retirement needs – with no depletion of their home equity.  

This not only alleviates the pressure from insufficient Government support schemes, it also successfully removes the threat of inter-generational unfairness by eliminating the obligation retirees may feel to sell the family home in order to access necessary capital. Yet beyond providing a much needed solution to the fiscal time bomb associated with an ageing population, the power of the Equity Preservation Mortgage™ lies in its inherent funding mechanism, applicable to all residential property owners with unencumbered home equity – not solely retirees in our retail market.

How the Equity Preservation Mortgage™ can be used in the Institutional Market

John Innes, Co-Founder and Director of Futureproof, says:

For Government’s, faith based organizations, not-for-profits, community housing providers, local councils and residential property developers, the Equity Preservation Mortgage™ is nothing less than game-changing. Not until now has there been a financial instrument which has the ability to unlock the untapped capital potential in social housing property portfolios.”

Focusing on the existing Australian pool of residential property portfolios, our research indicates a substantial number of eligible property portfolio types and institutions (conservative estimates of around 20,000-40,000), which would greatly benefit. These include, but are not limited to:

  • Defence Housing (approx. 12,600 homes owned by private investors and approx. 3,700 owned directly by Defence Housing Australia)[3]
  • Church/Pastoral Housing
  • Major Charity owned Social Housing
    • Mission Australia (approx. 2000 properties)[4]
    • BaptistCare (approx. 324 properties)[5]
    • Salvation Army (approx. 1400 properties)[6]
  • Government Supported Social Housing
    • Low Income Housing
    • Essential Worker Housing
    • Retirement Housing
  • Special Disability Accommodation (SDA) (approx. 13,300 places available based on a survey of 57 SDA developers)[7]
  • Student Accommodation
  • Supported Accommodation for Women
  • Community Housing
  • Corporate Employee Housing
  • Build-to-Rent Developments

The results of untapped potential

In the same way the Equity Preservation Mortgage™ provides a fiscally responsible and sustainable solution for the individual retiree, so too do the benefits apply to all institutional owners of residential property portfolios.

  1. Stakeholders will be able to monetize a maximum of 80% of property equity into capital without carrying investment risk, capital risk, interest rate risk or equity depletion risk.
  1. New capital inflows will be directly injected into the global capital markets through mortgage lending, asset management and RMBS securitization.
  1. New long-term income stream from asset draw-down over 15 years to 30 years, with no equity depletion and at no cost to the developer. For owners of residential property portfolios, it’s the nearest thing to free money.
  1. It also reasonable to expect positive outcomes in the way of increased residential development, as various Government bodies and Not-for-Profits will more easily be able to respond to the ever increasing demand for affordable and social

In the private sector, one key example will be the benefit to the emerging ‘Build-to-Rent’ (BTR) asset class. Under the BTR property model, institutional investors and residential property developers are shifting their investment capital from a build-to-sell model for short-term profits to build-to-rent, a model focused on developing, retaining and operating purpose-built property for long-term investment.

Although fairly recent in the Australian residential property market, this emerging asset class, in tandem with the power of the Equity Preservation Mortgage™, has the potential to establish itself as a key player, similar to that in the U.K and U.S.[8]. By providing institutions and property developers the freedom to unlock up to 80% of their property’s equity and draw-down a new income stream from their asset portfolio – we believe this will prompt greater growth in areas desperate for affordable housing options.

What does this mean for Institutions?

The Equity Preservation Mortgage™ allows a drawdown income of round 1.5-2.5% (p.a.) of the value of the property portfolio for a minimum of 15 years and up to 30 years – increasing the effective rental yield at no cost to the institution and with no depletion of equity in the properties.

This unique value proposition makes available a reliable new income stream to fund repairs and maintenance of existing portfolio properties or, indeed, to fund new social and affordable housing as needed.

There are many  opportunities created by unlocking millions in residential real estate which, until now, has been unachievable. The question Governments, institutional investors and property developers alike will need to ask themselves is, can we afford not to employ the Equity Preservation Mortgage ™ going forward.