Slicing and Dicing Property Lets More Owners Play
DomaCom is a technology platform that enables “fractional ownership” of residential property (in fact, any form of property.) DomaCom securitises property, and provides an exchange on which to trade this fractional ownership.
The great Australian dream of home ownership gets increasingly difficult to attain, with the average capital city house price running at $575,000, and the average unit price at $480,000.
And if you want a house in Sydney, try $1,013,258 for an average price.
Australians have always been told that residential property is a great investment. Shane Oliver, head of investment strategy at AMP Capital, says that over the very long term, residential property has provided a similar return for investors to Australian shares, at about 11 per cent–11.5 per cent a year. So there is definitely a role for residential property in investors’ portfolios, as long as investors understand that a housing investor depends more on capital growth than a share investor to generate return.
But the perennial problem – which gets worse as prices rise – is that residential property is a very big-ticket investment, with mammoth transaction costs, high maintenance costs, no guarantee of liquidity, and the fact that it is indivisible. If you’ve got $100,000 worth of BHP, you can sell half of them; but you can’t sell half a house. The old argument of ‘property versus shares’ is actually more of an argument of liquid, marketable assets on the one hand, versus large, illiquid, expensive assets on the other.
Until DomaCom came along, that is. Launched in 2013, DomaCom is a technology platform that enables “fractional ownership” of residential property (in fact, any form of property.) DomaCom securitises property, and provides an exchange on which to trade this fractional ownership.
Residential and commercial property owners and developers make the properties available to the platform, and investors can buy and sell fractional interests in these properties. Each segregated “sub-fund” on the platform holds one property. Investors can buy 1 per cent–100 per cent of the units in a sub-fund and own that percentage of the underlying property value and rental income.
The platform offers potential liquidity through online secondary trading of units in each sub-fund (or closure of the sub-fund and sale of the property). Investors can invest indirectly in specific properties, with relatively small investment amounts (the minimum investment is $2,000), and can build a diversified portfolio of small property investments. Investors can spread their investment geographically, broaden their asset allocation and get started on the property ladder for a much smaller outlay, without the need for borrowing a large amount.
Spring Financial Group and Empower Wealth offer model portfolios – targeted at income and growth respectively – on the DomaCom platform, giving investors instant diversification. This is an important attribute of the platform, because it gets around the fact that an individual homeowner is making an economic commitment to one highly idiosyncratic asset – which is by definition a poorly diversified investment.
So far, $10 million has been invested through the platform in cash and sub-fund units. With 506 investor accounts open, that makes the average investment $19,762.
The platform has syndicated 15 properties, and there are another six in the bookbuild stage. Properties on the platform or at bookbuild stage are located in Perth, Adelaide, Melbourne, Sydney and Brisbane, and rural Victoria, New South Wales and Queensland. Currently DomaCom has listed:
- 20 house and land package properties
- three rural properties
- one 120-property residential village
There are 360 financial advisers accredited to use the platform. The self-managed superannuation fund (SMSF) market is a major target market, but DomaCom also hopes to attract both budding and seasoned property investors looking for access and diversification.
DomaCom is also extending the fractional ownership concept into “crowd-funding,” seeking investment in managed investment schemes to own properties. It started this concept by launching a $300 million crowd-funding scheme to bid for the iconic 101,000 square kilometre Kidman cattle property portfolio, with the intention of renting the land back to the cattle business for an 8 per cent–9 per cent annual return.
While this proposal does not appear to have been seriously entertained by the vendor, S. Kidman & Co., DomaCom has other public crowd-funding raisings in the market that are very much alive. One is to crowd-fund the purchase of the Linton Estate in Ballan, Victoria’s first purpose-designed residential homes for the LGBTI (lesbian, gay, bisexual, transgender and intersex) community, while the others are for the Pajingo Cattle Station, near Charters Towers, in far North Queensland, and the Mywurlie/Queel Aggregation, a grazing, dryland farming and irrigation property located between Griffith and Hay in western New South Wales.
James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au