Soaring house prices and high interest rates are driving would-be property owners and larger investors to “fractional” investment, where they buy smaller shares in properties rather than buying them outright.
Joe Galvez, chief executive of BrickX, a platform that allows investors to buy one or more of 10,000 “bricks” in a property, says the company has a “heavy concentration [of users] under the age of 30″ amid the rising cost of home deposits and mortgage repayments.
Anthony Rivans and wife Nene are investing in fractional property for each of their four daughters.Credit: Chris Hopkins
In the June quarter, the median 20 per cent home deposit was $230,879 across the capital cities, up from $207,066 in 2019. The median deposit in Sydney was as high as $332,490, according to data from Domain.
Former motor mechanic Anthony Rivans, from Melbourne, is among those looking to spend much less to help his four daughters, aged 16 to 25, access the market. He is helping them invest in $10,000 – $2500 each – worth of shares in a rental property in Geelong.
He hopes his older children will contribute and says investing is better than spending money on going out. “If you’ve got a little bit of money to put aside for it, it’s going to pay in the long run,” he says.
BrickX, which began life as a startup appealing to Millennials aiming to get on the property ladder while saving for a home, launched publicly in 2016 and is one of several Australian companies offering shared property opportunities to retail investors.
Galvez, who bought out BrickX’s founders in 2019, says 39.7 per cent of the company’s 19,000 active investors are under 35, and many still do not directly own property.
But, he says, the most significant growth over the past 12 to 18 months had been in self-managed super fund and investment trust sign-ups. He says fractional investment is here to stay, as both an “aspirational asset” and an asset class for larger investors considering an alternative exposure to property.
Financial adviser Khaled El-Katateny helps his clients invest in BrickX.
Fractional investment starts with companies such as BrickX purchasing a property they think will increase in value and dividing its cost into shares. Investors receive rental income according to their share, minus letting and other management costs, and can realise any capital gains (properties are revalued every six to 12 months) by selling their shares at any time. Investors in an individual property vote every five years whether to sell the property or continue the investment.
This month, BrickX has about 30 properties listed, from $38 a brick in a two-bedroom detached house in the Ballarat suburb of Soldiers Hill to $766 for a stake in six apartments in Arncliffe in southern Sydney.
Khaled El-Katateny, the managing director of financial advisory firm Kelkap, which has helped more than 1000 clients invest through BrickX, says he has also seen a “younger demographic start to come on board”. He says most of his clients are investors keen to avoid high barriers to enter the property market and an “eggs in one basket situation”.
“Instead of having just one asset that could go untenanted for a period of time, what they could potentially do is split that $500,000 or $100,000 into five or six different assets, and get that kind of diversified approach to their portfolio,” El-Katateny says.
Jonathan Philpot, wealth management partner at HLB Mann Judd, says the fractioning model has “some merits”, including affordable access to property investment as well as the opportunity to diversify to different markets within Australia.
However, he says fractional property shares have much higher transaction fees when compared to investing in equities and offer less liquidity as it’s a smaller market. That means investors might struggle to offload a property if “sharp market downturn” causes its value to tumble.
CoreLogic’s Tim Lawless says anyone with a diversified fractional portfolio will likely see returns which mirror the overall property market.Credit: Natalie Boog
Galvez says investing in fractional property and equities through the ASX is like “chalk and cheese”, but since 2019, BrickX has reduced its transaction fees to 0.5 per cent when buying or selling. He says fractional investment offers more liquidity than conventional property investment.
The current median time to sell bricks is just over 25 hours, although faster sales can involve accepting lower prices.
CoreLogic director of research Tim Lawless, who was on BrickX’s advisory panel before the 2019 buyout, says anybody with a diversified fractional portfolio will likely see returns that mirror the overall property market. CoreLogic’s national home value index shows the market has risen 49.2 per cent in five years.
On average, investors hold their bricks for an average of two years on properties that have been on the BrickX platform for five years or more. The combined capital and revenue returns on the seven BrickX properties to have been fully wound up range from 1.5 per cent to 33.1 per cent.
By comparison, the S&P/ASX200 gross total return index (which includes reinvested dividends) was up 43.7 per cent in the five years from July 2019, although values wobbled this month.
Lawless says it’s unlikely corporate interest in fractional property assets risks adding to existing housing pressures, but says the model’s rising popularity “probably is a sign of affordability challenges” in the property market.
Rivans inherited a small portfolio of investment properties from his mother and previously held $5000 of shares in Qantas, but withdrew his investment in the airline after it shrank during the pandemic. He says he feels more comfortable investing in a property, even if it goes untenanted or the value drops.
“If you invest big money, that’s scary. But if you talk about a little pittance – $1000, $2000, $5000 – it’s worth the risk,” he says.
“You’re a property investor, you’ve got shares.”
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making financial decisions.
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