- Over time it has become harder for younger people to buy a house.
- Fractional and fragmented property investment is an interesting way to get a foot in the housing market.
- BrickX, Bricklet and DomaCom are discussed as three Australian based property platforms.
It’s becoming harder and harder to buy a house.
In 2019, Australia was placed at the top of the rankings for housing unaffordability in the Demographia International Housing Affordability Survey: 2020.
In fact, Australia’s 30-year housing affordability decline has been among the worst in the developed world according to experts from the University of New South Wales (NWS) Sydney.
Is there an alternative way to invest in property without having to fork out a large sum of money for a deposit and ongoing mortgage repayments?
Fractional and fragmented property investing looks to be a potential option.
The basic idea is that you can buy a small part/portion/share of a property. For example, if a property is purchased for $500,000 then divided up into 1000 units, that makes each share worth $5,000. This looks to be a way of providing people with a lower-cost way of getting their foot in the door of the housing market.
Note that there is a difference between fragmented and fractional property investment.
‘Fragmented property’ means all investors are true owners of the property (each being named on the land title as tenants in common) while ‘fractional property’ involves a company or trust owning the property and the investors owning shares of that company or trust.
There are currently a few platforms in Australia allowing you to invest in parts of a property, including BrickX, Bricklet, and DomaCom.
The idea for BrickX was born in June 2014 and launched in 2016.
BrickX allows fractional investment in residential properties through trusts, where properties are divided into 10,000 ‘bricks’, some bricks selling at less than $100 per piece.
NAB Ventures and the Westpac Reinventure Fund invested $9 million into the platform in February 2018.
BrickX has $20 million worth of assets under management today.
Unlike BrickX, Bricklet is fragmented property investing, so each owner is named on the title. Investors can also trade their piece on the Bricklet platform.
For example, in March 2020 they fragmented a $9 million build-to-rent block in Sydney. The property was split into 280 ‘bricklets’ which made each piece worth $31,885.
Bricklet also features a buy now pay later model, which works by paying down 10% then the remainder over 18 monthly instalments at 5% (no interest).
The platform received investment from Mirvac and Stockland in early 2020, with a 5.6% and 8% equity stake respectively.
Since November 2020, the platform has sold 400 bricklets at a total value of $11.5 million.
DomaCom is a fractional investment platform, where the Melbourne Securities Corporation Ltd (MSC) is a trustee of the fund while the Perpetual Corporate Trust Ltd is the custodian who holds the title of each property.
The platform allows you to invest in all types of Australian property, including residential, commercial, industrial, retail, or rural.
All these financial instruments are fairly new, and the market is emerging. Time will tell as to whether they actually provide an alternative to property-ownership due to millennials and others being priced out of the more traditional property market.