Australia has belatedly joined a global revolution in the way investors can get exposure to residential property with the recent launch of online real estate firm BrickX, where just $66 will get you a stake in a Sydney property portfolio.
The innovative investment vehicle, which offers a liquid and quick way of gaining exposure to such popular assets as a Mosman apartment with harbour views, openly admits it was launched to disrupt Australia’s residential property market in an “industry in need of a shake up”.
Startups like BrickX are leveraging the price transparency afforded by the internet to shine a light on the opaque world of property, and transform the way we invest in housing.
The days of lugging around an unwieldy newspaper in the search for a property are already a distant memory, and that’s just the start of a revolution of how we buy and sell.
Real estate is the fastest growing industry for crowdfunding, the online technique championed by Kickstarter to fund early production of tech innovation.
Broader crowdfunding for all industries has grown to an estimated $10 billion globally and by 2025 could exceed $90bn, larger than today’s global venture capital industry, according to a World Bank-commissioned study.
And of this, real estate crowdfunding will increase 2.5 times to $2.57bn in 2015, making it the fastest-growing industry segment of crowd finance, predicts a report by Massolution. The report concludes that crowdfunding platforms are proving a legitimate source of funds as compared to traditional banking and this new real estate finance and investment is “disrupting the asset class”.
Australia’s consumer protection regulations currently stand in the way of crowdfunding, though New Zealand altered its commercial laws last year and there are signs policy will change here going forward.
Several US firms, such as Realty Mogul and Fundrise, are vying to become the Kickstarter of property, while Nasdaq-listed, Seattle-based Zillow Group has a database of more than 110 million US homes and a suite of more than two dozen apps.
In the UK, Property Crowd touts a new way of owning high-yielding UK real estate trading companies without the hassle, risk, and long-term obligation. It is backed by Gallium Fund Solutions, which has gross assets of over £14bn invested primarily in real estate worldwide.
Meanwhile, real estate agencies have started their own website OnTheMarket.com in an attempt to challenge the dominance of Rightmove and Zoopla, which at one point reached a value of £1bn after listing on the London Stock Exchange.
Australia’s BrickX offers investors a way to sidestep stamp duty and legal fees. Unlike a REIT, investors buy ‘bricks’, or units in residential property trusts for individual properties, starting at $66 each. Indeed, there are currently no REITs in Australia dedicated to residential property.
Investors must register on the BrickX website and set up a digital wallet before they are able to buy up to 5 per cent of the property’s value. The investor then receives a monthly dividend from the rent of the property they own in proportion to the units that they own in the trust. Capital gains tax and income tax still apply.
BrickX chief executive Darren Patterson says he spent a good 12 months looking at property when he returned to Australia after 15 years in the UK. Time and money was sapped by auctions, open inspections, real estate agents, arranging mortgages with banks and brokers, and the use of solicitors and surveyors.
Land tax and large transactional costs mean property is often held for 10 years or more.
BrickX conducted lengthy market research into investor price points, what they wanted to buy, and their investment horizon.
Patterson spent last week in Melbourne and hopes to close on a property in South Melbourne and another bordering Albert Park, in Port Melbourne, this week. That will add to properties in Mosman and Enmore, and the aim is to acquire around 20 select properties over the next year.
BrickX seeks studios, one and two-bedroom apartments in ‘blue-chip’ locations such as St Kilda, Toorak and South Melbourne, suburbs which over the last 50 years have held their capital value without massive swings, rather than the fastest growing prices of recent times.
The firm looks for a steady capital returns, a yield greater than 4 per cent, and avoids properties with lifts and pools likely to incur costly body corporate expenses.
It will be another year or so before retail investors will be allowed to participate in BrickX under a new operating licence. At present, only wholesale investors with gross earnings over $250,000 over the past two years or assets of $2 million are allowed, and Patterson won’t say how many investors have been approved, only committing to “a good number” and some interest from New York.
The venture is undeniably innovative, and may well touch a nerve with fed-up house hunters as it promises to bring liquidity and transparency to “what has been a convoluted and expensive process for far too long.”