Ownership and Finance Disruption
This week I’m continuing the theme of disruption in the housing and property markets looking at two new and emerging finance, investment and ownership options.
Disruption as I outlined in my last post (Apartment Disruption) turns an idea on its head and brings about a revolution in a new, more efficient and creative format.
Finance has in many respects been at the sharp-edge of disruption, mostly driven by technology but, including competition from the tech-giants and now property ownership structures are being swept up in much the same way.
As traditional finance and shared ownership models evolve, disruptors along with the major banks see this trend as an opportunity and they are increasingly involved as equity investors, although direct lending to participants of the new formats is less clear.
These changes are in part delivering more accessible options for shared ownership and more flexibility for anyone keen to invest in property. Renters also benefit as one of the models discussed creates long-term tenancy options.
As a result, there’s a much greater willingness among buyers to embrace the idea of shared ownership and this is being supported by some of the major banks as they also embrace the impact of the shared economy.
What we are seeing is a sharing of assets beyond cars and the spare room to include entire properties. There are several options taking hold.
We have two central ideas, the first is co-ownership of a single property by a few individuals and the second is shared or fractional ownership with almost any number of co-owners or investors across many properties.
Both ideas are being enabled by improved technology as a key part of their success and buyer support by combining all the details, properties, legal and finance on central easy to use platforms.
Both ideas are also linked to making home ownership more accessible and also improving affordability with creative options outside of the more familiar model of a single owner or joint owners with a traditional home loan.
Kohab (kohab.com.au) is based around the simple idea of ‘owning together’ and this can be a single home to live in, an investment property or a holiday home and is also open to people looking to sell part of their current homes.
Selling part of your current home could act like a reverse mortgage for older owners and it looks an appealing way to buy holiday homes. Kohab is really a great example of the shared economy and could well help overcome the suggestion that we have a lot of underused homes.
While co-ownership is not a new idea, it’s always been possible (timeshare use to be popular in the 1970s and 1980s). However, this new platform makes the entire process easy and covers all the key areas; finding other likeminded co-owners, legal agreements and the big question of finance.
Previously, finance could have been a bit complex even a stumbling block, however Kohab has the support of at least one major bank. This should lead to the evolution of specific co-ownership mortgages which is likely to accelerate and encourage new ways of owning a home.
One advantage is the added flexibility as co-owners can split the ownership percentages and use of the property in a way that best suits their lifestyle. While the agreement between the buyers also clearly dictates how expenses and mortgage repayments are managed, so no arguments over who pays the electricity bill!
Kohab does not approve or provide loans but acts with finance and legal partners who are familiar with co-ownership. This extends to agreements covering circumstances when a co-ownership goes wrong.
The platform also brings people together who might wish to invest in a property but not live in the property, but instead rent their portion. It’s this sort of flexibility, plus other options that will drive the acceptance and use of Kohab.
With NAB’s involvement the bank plans to offer co-ownership mortgages where each party is only liable for their direct proportion of the loan without having to guarantee the liability of other co-buyers. This will be a major step making co-ownership more attractive to buyers and so should help boost affordability.
Kohab will also offers a ‘match-making’ service putting like-minded buyers and investors in touch with each other, so along with finance options that’s another hurdle overcome.
Now we come to fractional ownership of property an idea that’s also associated with the ownership of luxury cars, planes and boats.
This option called BrickX, is a rent-to-buy platform that is like a distant cousin to the build-to-rent market which is belatedly just starting to gain traction in Australia.
BrickX is already well established with almost 10,000 investors. The idea is also very popular in the United Kingdom a trend previously covered in Project Agenda. In the UK single properties are purchased along with smaller apartment blocks as part of the ownership portfolio.
The main difference between BrickX and Kohab is that BrickX is sort of like a share market for properties, it’s highly liquid and you can start your investment from as little as $100 or even less. Making it an attractive not only for anyone looking to enter the property market but also as an option to term deposits which carry low deposit rates.
The ‘ownership’ of each property can involve up to 2000 investors and the shares or BrickXs currently trade between $67 and $156. What we have is a well-organised and regulated fractional property investment vehicle.
Income is generated from rentals and the potential of a capital gain, and unlike investing in a single rental property, fractional property investment allows buyers to buy a share in a single or a number of properties spread across different locations. This sort of spread would normally require a lot of capital or loan funds, this flexibility increases the appeal of BrickX to novice and experienced investors.
BrickX holds each residential property in a trust, they manage all aspects of leasing and maintenance and the shares can be sold at any time. Property syndicates have always been around but they were not anywhere near as accessible or liquid as BrickX and more suited to the professional investor.
As we become more accustomed to the shared economy and understand the advantages that can flow to the property market, Kohab and BrickX should grow in popularity as they impact the wider residential property market. Both options offer flexibility and ease of transaction as key points.
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