Type: Offshore bond
Aim: Income by investing in a portfolio of residential apartment complexes in the US
Minimum-maximum investment: £4,000-no maximum, Isa £7,000
Term: Six years
Return: 7% income a year or 1.75% a quarter
Place of registration: Luxemburg
Closing date: October 20, 2006
Commission: Initial 3%, annual 0.5%
Tel: 020 7710 6906
This bond from Keydata aims to provide income of 7 per cent a year or 1.75 per cent a quarter by investing in a portfolio of residential apartment
Charter Devon Law principal Michael Posner says: “Keydata is offering the opportunity for investors to gain a higher than average fixed income over a six-year investment period through the current and potential holdings of apartment blocks in the south east of the US via its appointed property management agents Miles Properties.
The income of 7 per cent a year or 1.75 per cent a quarter is attractive to Posner. “It is stated that, at the end of the six year investment period, because the capital return is not wholly dependent on the sale of the acquired and renovated apartment blocks, the capital should be repaid in full. Money invested will be held in escrow by a Standard & Poor’s “A” rated company.”
Escrow is a legal arrangement where an asset is delivered to a third party, called an escrow agent, to be held in trust while waiting for the contracts to be completed.
Posner notes that the money will be held in escrow until the managing company, Miles Properties, has satisfied independent international property consultants, who in turn must satisfy the escrow agents that any proposed property is suitable for investment to provide the headline return. “In addition. Keydata oversees the matter, which provides the investor with additional protection,” says Posner.
In Posner’s view, Keydata has a good reputation for designing and offering structured investments. He think the ability to diversify property holding returns into a sector that would not normally be available to the average UK investor, linked to a headline rate of 7 per cent, may well be of interest. “Early investment attracts interest at 3 per cent and the interest growth is added to the initial investment. For direct investment, the income received will be taxable, at the investors’ rate of tax and the product is designed to be held for the full six year period, with a reducing early encashment charge being levied,” says Posner.
Posner regards the marketing material and key features as well presented as they deal with matters in a clear and un-confusing fashion.
On the downside Posner says: “Although Keydata indicates that a property downturn in the US will normally lead to an upturn in the rental market, which will assist to generate the income, concern is that the slowdown in the US housing market could be a great deal stronger than the orderly one foreseen by the Federal Reserve.”
He notes that new property sales in July 2006 were 22 per cent lower than a year earlier, with unsold new homes standing at their highest figure for 10 years. “Miles Properties and Keydata may well consider that a fall in the housing market is a buying signal to a wealthy investor, but if the actual effect is a recession in the USA, will that presage a rise or a fall in rental income, as the glut of property leads to a lack of competition in the rental sector? It is a difficult question to answer, and they may well be right in their assumptions, but a headline rate of 7 per cent and no offer of a share in the capital growth is not, in my view, a sufficient incentive to invest.”
Posner concludes that the product is novel and he does not see any direct competition until another structured product is launched.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average