European investors are lining up to plough money into Australian mortgage securities as the strength of the local housing market attracts international attention.
Non-bank lender FirstMac said European fund managers want the federal government to consider supporting euro-dominated investment into local mortgage backed securities.
''There is a wall of money that investors want to release from Europe into Australian mortgages,'' said FirstMac managing director Kim Cannon. ''The cost of swapping from euros into Australian dollars however is the major limiting factor.''
''The Australian industry attending the forum is trying to devise innovative ways to facilitate European investment at the right price,'' Mr Cannon said from the Global Asset Backed Securities conference in London.
Australia's housing market has raised eyebrows on global markets because of its strength – home prices jumped 20 per cent in the year to March – and fears it is experiencing a bubble. Fund manager Jeremy Grantham of US-based investment firm GMO yesterday reiterated his belief that Australia was experiencing a housing bubble.
Australia's residential market avoided the substantial price falls experienced by real estate sectors in the US, the UK, Ireland and Spain during the financial crisis in large part because of a shortage of available stock, a strong economy, government stimulus, and - over the past year and a half - lower interest rates.
Mr Cannon said European investors now want the Australian Office of Financial Management to consider supporting foreign-currency transactions of residential backed mortgage securities (RMBS). AOFM purchases RMBS and helps maintain a market in them to spur competition in the mortgage sector.
''I’m surprised at (Mr Cannon's) comment given that we’re not the arranger of the deals,'' said AOFM director of financial risk Michael Bath. ''We remain open to innovative proposals from arrangers of RMBS transactions.''
''Given that ultimately our mandate is for Aussie dollar assets, we would only have to swap back into Aussie dollars any foreign currency investments that we made.''
The AOFM began purchasing RMBS in late 2008, under a $16 billion program set up by the federal government to ensure the mortgage market remained competitive as credit markets globally seized up. To date, the AOFM has purchased $9 billion in Australian RMBS as demand for the securities has slowly improved.
Expression of overseas interest in the local mortgage market come one day after the Reserve Bank said inflows of foreign investment had the potential to undermine a country's financial stability.
''The process by which this can happen typically starts with a country, for one or more reasons, becoming attractive to foreign investors,'' said RBA deputy governor Ric Battellino. The country then allows in a flood of capital that overwhelms the capacity of the economy to use it productively, he said.
''This type of crisis can occur even in highly sophisticated economies, as illustrated by the recent subprime crisis in the United States.''
Source From SMH
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