House-sharing offer aims to get Aucklanders on property ladder

The Ownery co-founder Paul Jacobs
The Ownery co-founder Kurt Settle

Auckland startup The Ownery is offering a new way to enter the housing market by buying shares in a company that then buys a house.

Co-founders Paul Jacobs and Kurt Settle say they want to offer people the chance to increase their savings into the housing market because many Kiwis, particularly younger ones, face an uphill battle trying to save for a deposit as the median price in Auckland edges toward $1 million and banks require minimum deposits.

The business model is similar to residential equity crowd-funding but doesn't require The Ownery to have a crowd-funding licence. Rather, each company has to put out a product disclosure statement that requires more disclosure than crowd-funding and will be monitored by the Financial Markets Authority.

Another company, Property Mogul, said it's still looking at setting up a crowd-funding model for buying property but is yet to make a formal application for a licence to the market regulator.

The Ownery clips the ticket on the investments by charging those buying shares an up-front entry fee of 4-5% percent of the amount they put in (set at a minimum $500), and the co-founders' associate company, Houseshare Management, which will manage the properties, will charge an annual management fee of up to 1.5% of the property value.

Each company will own only one house and shareholders can exit at any time by selling their shares with no fee charged unless the shares are sold to a third party. Shareholders can request the house share companies buy their shares at current published value and share valuations will be updated monthly based on QV data and twice-yearly from a registered valuer.

Mr Jacobs, chief executive of The Ownery, said its model differs from property syndication by requiring a lower initial investment. He and his co-founder, both expatriates returning from careers in hedge funds and IT and banking, have modelled the company on house-sharing businesses in the UK and US.

The value of owners' savings will move in step with the housing market, whether it goes up or down. If property prices do fall, no additional funds would be required by shareholders but debt will be used to cover any short-term shortfall covered until the property can be sold and any proceeds distributed to shareholders.

No bank debt will be used by house share companies to buy the houses but each constitution will allow borrowing of up to 20% of the property's value for buying back shares of those exiting and other big ticket items not covered by insurance.

The money invested will be held in trust until each property is bought and refunded if the sale falls through.

One property each month will be advertised on the company's website and all the properties will be at the cheaper end of the market, below the median price in Auckland, said Jacobs, to ensure good rental yields.

The annual management fee will be deducted from rental income, along with other expenses such as rates and insurance, and a small dividend may be paid to shareholders if there's any income left over.

Mr Jacobs said share ownership is being restricted to Kiwi residents rather than offshore investors because the model was intended to resolve New Zealand's shrinking home ownership problem rather than as a pure investment.

(BusinessDesk)


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15 Comments & Questions

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Sounds like a good idea. There are other companies which do a similar thing but the asset varies. Example is https://www.bitgold.com/ where the money you invest helps you to buy equivalent in gold. Another example is https://www.whiskyinvestdirect.com/ where money is invested on whisky.

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Also - www.supportcrackityinhisdotage.com - I also will invest it in whiskey on your behalf......

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Great to see a positive investment vehical rather than the woefull declining NZX and NZAX.

Housing is the cheapest it has ever been for first home buyers with record low mortgages rates at 4% anyway.

John Key is easily influenced by a few Herald moaners which shows weakness thats why Winston is back again.

Looking forward to investing as long as it does not go on the NZX.

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Average house in auckland = 10 times the average income. This is not cheap. Mortgage rates being low reduces the cost of ownership but does not make the capital cost cheap. Just wait till rates go back up and then you will see the cost of housing coming down.

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Errm...not sure if this comment is meant to be ironic Oliver, but just in case, the NZX 50 Gross Index is up +14.44% per year over the last 5 years (i.e. you would almost have doubled your money simply buying the index), and +15.15% per year over the last 3 years. Hardly woeful.

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I don't even know where to begin with this comment...

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What a feast of nonsense. Somehow pumping extra demand into a overvalued property market is a good idea? (Overvalued = just see what would happen if the price of money was ever allowed to float, and not be fixed by those determined to create eternally rising prices, market be damned.)

And the notion that houses are the cheapest they've ever been because interest rates are low? The more important part is paying that money back, and without inflation it's going to be extremely hard to pay those loans off. Prices are one thing; the real story is how much you have to work to get something.

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Not that new,
Sounds like REIT, supposed to be common overseas.

A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands.

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Wow, so small time investors are already being fleeced by 6% on their very first buy. Coincidentally, this is much more than the average capital gain on a house in NZ during more normal times. You therefore have to wait an entire year (or more) to even think about starting to breaking even!

But wait, there's more: "If property prices do fall, no additional funds would be required by shareholders. Debt will be used to cover any short-term shortfall". And what if shareholders foresee multiple years of house price declines and no longer want to throw in money? What if the market declines by 30% and shareholders start rushing for the exits? The FMA's focus on fee structure rather than disclosure (as cited in another NBR article) is also very worrying.

The Ownery looks like another product of an asset bubble, entering way too late in the cycle and looking to onboard individuals with no/little capital and financial knowledge to try and eek out gains at the peak of the bubble. If you can't afford a house outright, you certainly can't afford to be "investing" in these vehicles...

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"...all the properties will be at the cheaper end of the market, below the median price in Auckland, said Jacobs, to ensure good rental yields."

That tells me everything: When it comes to the rental residential market:
High Yields = Little-or-No Capital Gain.
The cost of ongoing maintenance, incidence of rental arrears, tenant turnover etc are all going to be very high.
This does nothing to mitigate the housing crisis for those wanting to own their own home; it's similar to fractional ownership, not unlike commercial property, but with an "asset" that is freighted with high risk, requiring constant vigilance as to performance and will come with low reward.
Trust me, this isn't going to fly.

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Agree with all your comment, except will not fly. There will always be naive investors and lenders who want to make a buck.

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In addition, the liquidity features sound very vague/opaque. QV data is one thing, how it's applied to the invested property is another. Wonder if the registered valuers will be in any way linked to the promoters (including source of their fee payments)?......good luck!!

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A good idea whose time has come. Popular overseas. Nice to be able to spread your deposit over several properties while you are saving it and mitigate against any correction in the market. Could be a good way to save some money for the kids and introduce them to the market too. I'll give it a crack, after all what investment is completely without risk.

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There's no diversification. All the properties are in Auckland, so if the market falls, you'll lose money.

If I were you I would keep your deposit in cash and wait for the market to drop. It will happen. Better that than paying 6% of your savings to someone else just to 'get on the ladder'.

If you feel you really have to invest your deposit on the market, buy a listed REIT. That will give you diversification and you can get your money back tomorrow if you need to. And it won't cost you 6% of your savings to invest.

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Given the only income might be a small dividend (IF there's any cash left after fees and expenses), this will clearly be an investment made for capital gain only. I assume the IRD will therefore treat the sale proceeds as a capital gain and tax them accordingly.

What happens if fees/expenses exceed the rental income?

The fees look a tad cheeky. Year 1 fees will be 5% up front plus 1.5%, which is $48,750 on a $750,000 property. This seems a lot for simply looking at realestate.co.nz, finding a few likely properties, putting some numbers into a spreadsheet, buying a place and managing the tenant.

The only risk to the manager seems to be that if property values fall, the value of the 1.5% p.a. fee will reduce. Assuming a 10% fall in the property value in year 1 in the above example, the investors would be down 16.5% or $123,750 (10% loss on the value plus 6.5% in fees), but the annual fee for the manager falls just $1,125 from $11,250 to $10,125. This is hardly a fair risk share.

Presumably when/if a property is sold the investors will pay the real estate agent fees to get out too.

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