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High Yield Property Debentures

High return fixed interest investments offered through prospectuses are currently being actively marketed to investors. A number of these investments include debentures and unsecured notes issued by property developers and financiers of property developers.

Recent media reports of uncertainty in the property market could be a timely reminder to check you're still comfortable with the potential risks and rewards these investments may offer. Remember that higher returns mean anything more than 1-2% above the market rate for similar products, in this case debentures and unsecured notes.

Five important questions

Take another look at your prospectus. See if there are any matters that could concern you. Here are a few questions that might help:

  1. How does the yearly rate of return you are offered compare with other fixed interest investments?
    Higher return fixed interest investments may suit you as long as the risks are clearly disclosed and clearly known. Remember that in general higher returns mean higher risk.
  2. What sectors of the property market is your company involved in?
    Would the company be especially vulnerable if the investment property market fell? This could increase your risk.
  3. Do you and your fellow investors hold any security over real property?
    If not, the investment may be riskier.
  4. Are your debentures or unsecured notes issued by a company that actually develops property itself or by a company that offers finance to other companies?
    Investment in companies that operate only as financiers may involve more risk.
  5. Do the financial statements of your company present a picture of solid financial health or do they show evidence of some financial strain?
    Financial strain may make it harder for the company to pay interest and repay principal to debenture and note holders.

Deciding what action to take

If your investments still suit your needs and circumstances, and if you're still comfortable with the level of risk you're taking, then you may be happy to ride out any possible changes in market conditions. Otherwise, you may be able sell your investment or not renew it when it matures.

You could also seek a second opinion from a licensed advisory business that's independent of the company you've invested in.

Copyright ASIC, 9 March 2005.

This article is not a substitute for independent professional advice. We do not warrant the accuracy, completeness or adequacy of the information or material in this article. All information is subject to change without notice. We and each party providing material displayed in this article disclaim liability to all persons or organisations in relation to any action(s) taken on the basis of currency or accuracy of the information or material, or any loss or damage suffered in connection with that information or material. You should make your own enquiries before entering into any transaction on the basis of the information or material in this article. Please ensure you contact us to discuss your particular circumstances and how the information provided applies to your situation.

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