Private sector credit checkmate

On February 4, 2021 I had the opportunity to read the "good" results obtained by a credit institution in a year as complex as 2020, results which announced, albeit slyly, the future financial crisis, and more specifically banking, which is ravaging the Western world in this first half of 2023.

We found that the financial institution's risk-weighted assets had been reduced by $700 million from the existing assets of $30,700 million in 2019, despite a $2,000 million increase in its loan portfolio in full. economic crisis.

How can we explain this inconsistency?

In fact, the strategy of this bank was coherent because it restructured its loan portfolio, increasing credit to public administrations and reducing loans to SMEs, that is, loans at risk. These strategies aim to strengthen the capital ratio required by the Basel agreements in credit institutions, having, as a first effect, the bocage of private investment, because the legislation determines arbitrarily the risks related to credit operations. and whether or not bank capital is used, depending on who and what the loans are for. For example, for the purchase of housing, household appliances or businesses, the credit offered involves the intervention of a different percentage of the credit institution's own funds, which can reach up to 100% in the event of acquisition of businesses, while lending to public administrations frees banks' equity capital from all risk, because their percentage in credit, for example, of public debt, is nil. Creating great inequalities in access to credit between public and private, between expenditure and investment.

What are the consequences for the real estate sector?

The difficulty of access to credit, for the purchase of a property, which fundamentally concerns the middle classes in the process of impoverishment, requires innovative solutions which take into account the internationalization of this market, the pooling of the risk of investment and local and international taxation associated with any real estate purchase, whether to live there or to exploit it economically.

Problems and solutions for private credit

The current rise in rates and the reduction in the supply of credit for the private sector, because the Basel ratios benefit the public sector, is causing a significant increase in European investors in Canadian "stone", concretely in Montreal, because this city offers returns exceeding double digits in the residential sub-sector, and these investments are pooled by funds also guaranteeing management in the rental market, which is a godsend for the investor who does not want to be burdened with management problems but wants a high return for his savings. In addition, the excessive greediness of the States, unaccustomed to the Basel agreements, is confronted with the reduction in savings and therefore in the deposits of the middle classes. This explains the bans on withdrawing cash and the threat of coins disappearing.

In this context, we have investigated some Investment Funds regarding their service offer to obtain a good return, eliminate investment risk and benefit from good taxation.

Our question: I have 5 million euros, what investment do you offer me so that my capital is guaranteed and the return exceeds 7% annually?

One of our interlocutors, whose head office is in Luxembourg, has created a subsidiary in Canada, dedicated to the acquisition of buildings and rental management. To do this, they work with several Canadian banks which offer favorable credit conditions, guaranteed by the assets acquired and by funds made up of pooled contributions from European investors. How are these funds made up? The operating model developed takes into account the stated principles: zero risk of losing the investment, high yield and favorable taxation. From Luxembourg, they offer the deposit of money in the form of credit or private loan because, according to this type of contract, the money does not change hands, it is therefore 100% guaranteed. For 5 million € over 5 years, they offer 10% annual return, that is to say, 500,000 € each year. The taxation of the return on this type of product will depend on the country of origin of the investor, between 5% and 15%. %.

However, we have found a solution to optimize this investment for tax purposes, based on the final levy and the application of the Most Favored Nation clause. Obtain the returns of real estate investment without the headache of rental management and favorable taxation. 

Get in touch with us: cclam@cclam.org