Soaring house prices around much of the country in recent years, especially in our capital cities, combined with stagnant wages growth, have made the dream of owning a home a distant reality for many Australians, with first homebuyers struggling to get into the market.
To combat the problem, a number of fractional property investment platforms have sprung up, providing first time buyers with a leg up onto the property ladder.
BrickX and DomaCom emerged two years ago, enabling investors to buy a share of a home with as little as $100, and more recently another start-up, CoVESTA, arrived on the scene. For those with some money saved but not enough for a typical 20 per cent deposit, these companies provide an opportunity to get into the property market debt free, and often live in a property they co-own.
Through CoVESTA, buyers can choose a property and then pay a minimum of 5 per cent of the purchase price to start an invest-and-rent syndicate, either with friends and family or through the website, allowing them to live in the property. With a minimum investment of 1% of the purchase price, investors can begin to build a diversified property portfolio, from residential to commercial.
Once purchased by CoVESTA, the property is held in a trust for five years, during which time buyers can trade shares to other investors. After five years, investors vote to either retain or sell the property. DomaCom and BrickX offer more flexibility, with investors able to sell their shares or sell the property at any time so long as all investors are in agreement.
However, there is some hesitation towards these platforms with some experts believing that the restrictions on investors’ ability to make decisions about their investment requires some caution, especially as Australia’s house values are starting to drop and are predicted to shrink even further in many markets. If investors are relying on strong rental yields and capital growth in the short term, then falling prices could deliver poor, if any, return if other investors in a syndicate wanted to sell the property.
David Johnston, managing director of Property Planning Australia, says “You have to be in a position to hold that asset for seven to 10 years to allow compound interest to take effect and to ride out the property cycle because you can’t avoid the costs of getting in and out of property, particularly government taxes.”