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.
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