A new company is offering the ability for people to buy a share of Auckland homes for as little as $500. Photo / NZ Herald
A new company is offering the ability for people to buy a share of Auckland homes for as little as $500. Photo / NZ Herald
A new company share scheme allowing people to get on the Auckland property ladder for only $500 has been questioned by real estate experts.
Martin Dunn, who heads apartment realtor City Sales and who also attempted to start a residential investment scheme, was sceptical about The Ownery which offers people shares in companies owning a house, saying he had never heard of the people involved and wondering about the basis of the scheme.
"This is an extremely complex area of real estate investing and having been there, I hope they understand what they're offering and the Financial Markets Authority's actual requirements," Dunn said.
David Whitburn, a former lawyer and now multimillionaire property investor and expert, said The Ownery scheme was a nice concept but he recommends other ways to get into the market.
"It may be better to pool with a group of friends or family and purchase property to get better control, so you don't have to pay all the compliance costs and overheads."
Whitburn described The Ownery scheme as "crowd-funding of property investment."
"It will be suitable for people with low to very low savings, that are not sophisticated investors. I suspect this will be a more popular investment choice for those in their late teens to late 20s with some savings. I don't view it as suitable for those wanting to contribute big amounts for the house," he said.
However there were positives, he said.
"I like the low entry points - very rare to have a $500 entry point. Nice for people who aren't proficient at saving. I also really like the ability to increase the exposure and buy more shares. The management service offered is a benefit to many too. The liability and risks of direct property investment for new investors aren't often thought of, so having it professionally managed is a real benefit," he said.
It will be suitable for people with low to very low savings, that are not sophisticated investors. I suspect this will be a more popular investment choice for those in their late teens to late 20s with some savings. I don't view it as suitable for those wanting to contribute big amounts for the house.
"There is no established secondary market to on-sell your shares. When the market drivers change with greatly increased supply and slightly less demand for the world's third most liveable city (Auckland), there will be those wanting to exit. More will want to exit than come in. The lack of a secondary market will exacerbate losses. This could be a significant issue for many prospective investors as I bounced this around the office and we felt, who would want to buy something in a falling market that you essentially have no control over.
Some of the obvious questions are what happens if property prices fall? How much debt is involved in purchasing the houses? How much liquidity will there be for those who participate? And what sort of fees and charges will the organisers be collecting - presumably they are in this to make money?
"In addition there are fewer benefits of leverage with this structure which has created significant amounts of Auckland property millionaire home-owners and a smaller number of investor millionaires too," Whitburn said.
He also raised questions about the management fees.
"These have to be factored in. I cannot see what they are. If they are unreasonably high, some prospective investors will consider the listed property trusts and retirement villages which generate over 5% yields with a strong secondary market in the NZX," Whitburn said.
Mark Lister, Craigs Investment Partners head of private wealth research, questioned the wisdom of investing in companies which own individual houses, initially in Auckland.
"Some of the obvious questions are what happens if property prices fall? How much debt is involved in purchasing the houses? How much liquidity will there be for those who participate? And what sort of fees and charges will the organisers be collecting - presumably they are in this to make money?" Lister asked.
