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Risk Mitigation

We mitigate the risks involved in  our investments to ensure that investors receive high returns with little risk.

All investments involve varying degrees of risk. While there are many factors that may impact the performance of any investment, the section below summarises some of the major risks that investors should be aware of when investing in our investment opportunities.

Before investing, prospective investors should consider whether a given opportunity is a suitable investment, having regard to their personal investment objectives, financial position, and particular needs and circumstances. Investors should also consider and take into account the level of risk with which they are comfortable, the level of returns they require, as well as their frequency and nature, and their investment time horizon. Investors should seek professional advice in setting their investment objectives and strategies.

What are general investment risks?

These are risks that apply to investments in general, not just ours.

Market risk

If a market that an investment is exposed to experiences negative movements (such as a price drop), this may affect the investment’s ability to achieve the targeted performance or even fully recover the amount invested into those markets.

We mitigate market risks by monitoring general economic conditions, receiving regular reports on broad aspects of the Australian economy and the effect of market and other events on various categories of industries and properties. We always take general market conditions into consideration when conducting due diligence on a potential investment

Interest rate risk

Interest rate movements may adversely affect the value of an investment in various ways. Rising interest rates will affect the amount of interest that we will be required to pay during the construction phase of a project, which may affect the profitability of that project.

We  monitor the cash rate set by the RBA and the interest rates of any lender that a project may be exposed to via variable interest rate loans for any potential changes.

Liquidity risk

All funds invested into an investment opportunity will be deployed to undertake that specific project, exclusively. As such, each project will be illiquid throughout its respective investment term until the exit strategy for that project can be realised. As a result, investors will be unable to withdraw their investment within a project until the end of the investment term.

Investors should only consider an investment in a project if they are not likely to require access to their investment capital during the term specified in the project’s Information Memorandum.

Mandate risk

Each investment is tied with a specific property development project. Investors will have no direct control over the property development process nor how capital within that project us utilised.

Regulatory risks

There is a risk that an investment’s operations may be negatively affected by changes to government policies and regulations. Although unable to predict future policy changes, we manage this risk to the best of our ability by monitoring and reacting to any potential regulatory and policy changes.

Taxation risks

There is a risk that the taxation treatment of the an investment will reduce the returns received by an investor.

Investors should obtain their own advice regarding the taxation implications of an investment in a project.

What are the risks of property development?

There are risks associated with undertaking property development projects and, the materialisation of these risks could delay and/or reduce returns to the investors in that project. These risks include:

Environmental risks

Changes to, or unforeseen environmental, archaeological, and ethnographic conditions and requirements may impact the progress and costs of a project. This may result in reduced returns to investors. We mitigate this risk by evaluating the development site and engaging an independent land surveyor to provide a report on the site to determine development suitability.

Construction risks

There are a several risks involved with construction such as:
  • the builder going insolvent;
  • construction costs being higher than expected;
  • inadequate liquidity to fund construction.
We mitigate these risks by:
  • ensuring a guaranteed maximum price building contract from reputable and established builders who have experience in the type of proposed construction to be executed between the builder and borrower;
  • ensuring that the projects are employing standard construction techniques and that adequate building insurance cover is in place;
  • monitoring all construction loan draw-downs to ensure that there are always sufficient funds remaining to complete the projects. An independent quantity surveyor or construction cost manager may be appointed prior to the commencement of the projects to facilitate this;
  • including a contingency amount in the construction budget.

Planning risk

It may be more difficult than anticipated to obtain the requisite government or regulatory approvals and permits for a project and this may increase costs and cause delays to a development project. In addition, a requirement of a government or semi-government department or authority (including servicing issues) may result in a reduced yield or delay in a property development project which may impact on the ability of that project to generate a profit.

This risk is mitigated in the due diligence phase of each project by consulting with experts with experience with the relevant approval authority.

As a contingency, the Trustee of a project may liquidate the development site and return investor capital if an inability to obtain required permits would prevent the project from proceeding.

Contractor & third party risks

Contractors and third parties engaged to perform works on a project could become insolvent or default under their contracts which may lead to delays or impact on the viability of a project.

We mitigate this risk by selecting contractors with a solid financial position and proven historical performance, backed by Director guarantees, and by ensuring the appropriate insurance policies are in place.

Sales risk

The primary exit strategy for our investements is generally the sale of the developed properties. It may be more difficult than anticipated to sell the properties or to achieve the anticipated sales price/s. In the event that the properties remain unsold for more than six months after the registration of titles, the Trustee may implement a secondary exit strategy, such as repurchasing investors’ Units or refinancing the development to generate the required liquidity to pay investor capital and returns.

See the video below to understand the strategies we implement to sell our developed properties.

Our current investment offers

Wealth Creation - Lion Property Group

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