Self-managed super funds are now a major source of credit to Australian property investors, taking over from banks which are subject to restrictions governing lending to real estate investors.
New research from Credit Suisse equity strategist Hasan Tevfik finds that the $622 billion self-managed super fund sector is a significant lender to property through senior debt, mezzanine debt and preferred equity.
Returns of 15 per cent to 20 per cent were recorded by mezzanine debt providers versus 2 per cent available for returns on cash.
"Over the last few months, we have had numerous discussions with people in the business of channelling money towards resi-developers from investors like SMSFs," the strategist said in a report on Wednesday, citing lawyers, accountants and specialist intermediaries who create unlisted trusts.
"Selfies are now part of the shadow-banking system."
Short-selling
"Selfies are using almost all equity to finance the residential developers Aussie banks don't want to touch. If any of these loans turn bad, selfies will bear the pain, but it will not start a domino of collapses like the US financial system endured in 2008-09," he says.
"So we have leveraged intermediaries, banks, stepping away from financing a potentially peaking industry and an unleveraged financier stepping in.
"At the margin, we think this limits the potential systemic nature of any downturn in Aussie housing.
Yet again, Australia's enormous pool of unleveraged capital -superannuation - is having a stabilising influence on our economy."
What this means for banks is that they are pulling away from "risky" lending "at the right time". The rate of growth in bank lending to property development slowed to 5 per cent in 2016 from 20 per cent in 2015.
Bank stocks are priced for the prospect of reduced dividends, according to Credit Suisse. That would suggest they are not good candidates as short-selling targets.
The strategist also names stocks that make for better investments than lending to property developers.
Those are Macquarie Group, AGL Energy, BHP Billiton and Eclipx, all of which Mr Tevfik thinks offer total returns of 16 per cent a year over the next two years, lower fees, and better liquidity than mezzanine residential property debt.
Meanwhile, mortgage defaults are rising, just not to levels that are high enough to trouble the Reserve Bank of Australia and banking regulator, APRA. A Moody's Investors Service analysis of prime residential mortgage-backed securities showed loans 30 days or more in arrears rose in the June quarter to 2.16 per cent from 2.01 per cent in March at regional banks. In the major four banks, the so-called 30+ day delinquency rate only rose slightly, to 1.46 per cent from 1.44 per cent.
The RBA has warned that the coming wave of apartment completions in Melbourne and Brisbane raises the risks of settlement failures.