..



.

Business News

Courting co-owners to buy a house online may be riskier than it looks

  • Written by Garrick Small, Associate Professor, CQUniversity Australia

Digital platforms are offering people who couldn’t afford a house on their own, the opportunity to divvy up the costs with others. But co-ownership of real estate can be a risky and potentially costly business.

In an environment of high residential prices[1] where families are becoming a smaller proportion of households[2], and permanent relationships are giving way to transient and more distant connections, digital platforms for co-ownership are filling an emerging need.

Co-ownership permits a whole range of sharing options. For example, it allows an occupant to be a part owner in their own home even if they cannot afford to buy the whole thing. It also permits an investor to take a smaller position as a promise of a better relationship with the tenant.

Read more: The forgotten 660,000 locked out of home ownership[3]

However, buying or selling a property involves legal, financial, statutory and agency costs that mean that even moving across the road can cost about half a year’s income. This means that you need to be sure of what you are doing and reasonably confident that you will not be changing your mind about your investment too quickly.

Digital platforms like Kohab are using[4] the legal relationship known as “tenancy in common” to facilitate co-ownership. It permits the separate parties to have a defined share of the house and to transfer their interests independently.

But this still presents considerable practical risks. Someone wanting to sell their share of a house is likely to find a limited market of other people willing to take over the part ownership, and they are likely to have a weaker negotiating position in selling.

The remaining co-owners of a house also have no control over who the incoming partner will be. This may limit their preferences in relation to how the property should be managed. It can make remaining with the investment uncomfortable and lead to even more turnover of ownership and the prospects of sale at a discount.

How co-ownership has changed over the years

Shared real estate ownership has been evolving for some time. The strata title system was introduced over 50 years ago[5] when it became necessary for single buildings to be owned by multiple people.

Company title co-ownership was unpopular[6] because the co-owners did not always agree on how to manage their property. It was also unpopular because sale of part-interests was difficult and often settled at a discount to true value.

However, it overcame the problems of management and resale that dogged the earlier company title. This approach used company shares to split ownership of a property between several investors.

Read more: Bond aggregator helps build a more virtuous circle of housing investment[7]

Australia was later an innovator in the development of property trusts that applied the company model, but with someone to manage the the shared ownership of complex properties.

These property trusts have blossomed as an investment[8] and are now commonly known by their US name - real estate investment trusts. These trusts usually focus on commercial buildings where they provide a vehicle for small investors to access property investment in major real estate assets.

Where digital platforms come in

Online applications such as DomaCom[9] or BrickX[10] have brought the trust model online and applied it to smaller properties that are not usually the target of these traditional trusts. BrickX for example divides its selected investment properties into 10,000 “bricks” and allows investors to buy bricks.

This permits up to 10,000 owners for an individual property. It also allows small investors to spread their funds across multiple properties to control their risks. DomaCom follows a different strategy to achieve the same goal of allowing a large number of investors to be involved in individual managed investment properties.

Then there’s new apps like Kohab[11]. Its point of difference is that it operates on a smaller and perhaps more intimate scale.

It does not rely on a crowdfunding approach, but uses its online platform to connect owner/occupiers and investors for the purpose of co-ownership. It does not produce real estate investment trusts, but does facilitate the co-ownership of individual dwellings by more than one owner.

In capital cities it is getting harder for individuals and families to afford properties. Co-ownership with others, either as shared occupants, or distant investors, is one way to cross the rent/buy gap. But it’s not without risk.

References

  1. ^ high residential prices (www.abc.net.au)
  2. ^ proportion of households (aifs.gov.au)
  3. ^ The forgotten 660,000 locked out of home ownership (theconversation.com)
  4. ^ like Kohab are using (kohab.zendesk.com)
  5. ^ introduced over 50 years ago (research-repository.griffith.edu.au)
  6. ^ was unpopular (www.aussie.com.au)
  7. ^ Bond aggregator helps build a more virtuous circle of housing investment (theconversation.com)
  8. ^ blossomed as an investment (law.unimelb.edu.au)
  9. ^ DomaCom (domacom.com.au)
  10. ^ BrickX (www.brickx.com)
  11. ^ Kohab (www.kohab.com)

Authors: Garrick Small, Associate Professor, CQUniversity Australia

Read more http://theconversation.com/courting-co-owners-to-buy-a-house-online-may-be-riskier-than-it-looks-93058

Digital Agency

Business Daily Media Business Development

Exciting Things About Sydney

Sydney is one of Australia’s largest cities that boasts a population of over 4 million people. It is a city that is famous for its picturesque views, multicultural people, superb weather, ...

News Company - avatar News Company

Accor announces new partnership with Grab to help members Live Limitless

Accor has announced a new strategic partnership between its new lifestyle loyalty programme, ALL - Accor Live Limitless and South East Asia’s leading super app, Grab. The deal brings toget...

Accor Pacific - avatar Accor Pacific

Upgrading to Deep Pocket Sheets

So, you have this amazingly comfortable bed that has a built-in topper and you are struggling to find the right bedding. You need to look for a sheet called deep pocket sheets or mega fi...

News Company - avatar News Company

Food you need to try in Beijing

Beijing is a beautiful and interesting destination for any kind of traveler. However, foodies will find a new heaven and will be able to try out tasty, flavorful and sometimes very special...

News Company - avatar News Company

4 Best Budget-Friendly Attractions in Las Vegas

Perhaps no other city in the world deserves the moniker “Sin City” more than Las Vegas. This city has been illustrated in countless works of art as the place where dreams are made, lives a...

News Company - avatar News Company

Bahrain Property Show 2018: How does it reflect the real estate market development in Bahrain

It is no secret that the Arabian Peninsula and the Gulf Cooperation Council (GCC) countries are currently going through a lot of pivotal changes. Such changes do not include economic or po...

News Company - avatar News Company

Business Daily Media Business Reports

Di Jones real estate recognises high achievers

Di Jones celebrated its outstanding performers on Saturday (24 February 2018) evening at the Di Jones Real Estate Annual Awards.                               The bla...

Helen Hull - avatar Helen Hull

Eclipse Travel Expands Operations to New Zealand

Eclipse Travel, specialists in key adventure destinations such as Antarctica, the Arctic, Africa and Latin America, have announced today their expansion of operations to ...

Yvonne Kong - avatar Yvonne Kong

How medical professionals can benefit from an overall wealth management solution

As a health care professional, you have made it your life's work to focus on the care and health of the general public. While this kind of work can be extremely rewarding...

News Feature Team - avatar News Feature Team

Why Pinterest Should Be Part of Your Marketing Strategy

Pinterest is a growing social media platform that can deliver significant traffic to your website and new followers to your brand. With it’s steady growth and outrageous ...

Greg Nunan - avatar Greg Nunan

The top reasons why gyms fail

Steve Grant is a Business Coach and Founder of GymHub.com.au   Every month thousands of new trainers walk out of their 6-month course with the qualifications needed ...

Steve Grant - avatar Steve Grant

WHITE LABEL NOBA’s Winter 2016 season: Earth + Country

Taking cues from the warm winter colours of tobacco and caramel, and combining them with the strength of navy and the embracing lightness of whites and creams; and then...

Kath Rose - avatar Kath Rose

Former Etihad boss brings substantial event insight to PMY Group Board

Paul Sergeant PMY Group, the architects of the digital insurgency occurring at major venues across Australia and New Zealand, are delighted to welcome 35 year even...

Annie Konieczny - avatar Annie Konieczny

More training for coffee making than property sales: REINSW

Sydney 9 May 2016. An overhaul of education and training standards for the real estate profession must take place to help prevent illegal activities, according to the Rea...

Helen Hull - avatar Helen Hull