Property buying scheme for ‘suckers’
WHAT do you do if you're among the young generation locked out of the property market by skyrocketing prices in Australia's major cities? Well, you ask your friends and family members to chip in to buy one.
At least that's what a growing number of companies who offer fractional property investment aimed at millennials are banking on. DomaCom is the latest to make that dream (or nightmare?) a little more real after it announced earlier this week it had struck a deal with major property listing website Domain.
DomaCom has a technology driven platform to allow for fractional investment in property and is now set to integrate its service with the popular real estate site.
"This is a significant new integration for DomaCom that will be critical in taking property crowdfunding into the mainstream," said company CEO and founder Arthur Naoumidis.
"The highly regarded, proprietary crowdfunding campaign technology the DomaCom platform brings, combined with Domain's extensive property listing data will enable Gen Y and millennials to get on the property ladder by crowdfunding a property of their choice with their friends or family."
Essentially, you see a property you like, you start a campaign and rally your mates on social media to throw money in the hat to buy it.
Once the kitty gets to 50 per cent of the asking price, DomaCom carries out an independent valuation and building inspection on the house. Once the full amount is reached, the company - not the person who started the crowdfunding campaign - purchases the property.
Like other managed funds, DomaCom represents the investors in the syndicate and appoints a manager once a deal is done. If investors want to live in the house they chipped in for, they need to apply to a DomaCom property manager.
DomaCom is one of a handful of companies such as BrickRaise, BrickX and VentureCrowd operating in Australia that target younger demographics desperate to get a piece of the housing market through fractional investing.
Mr Naoumidis sees the new partnership as a boon for both potential buyers and those looking to sell property.
"This innovation will give property owners access to the new crowdfunding revolution simply by listing their properties," he said, "and at the same time open up a vast new pool of potential investors to the DomaCom platform."
But not everyone is convinced.
When news of the deal was shared on the AusFinance subreddit this week, the response was overwhelmingly negative.
The forum is a dedicated space for users to discuss and share articles on the economy, personal finance and the property market.
"You've got to be shitting me?!" commented one user.
"Crowdfunding so the corporation can take ownership. No thanks," said another.
Although the company pitches itself as a way to gain exposure to potential capital gains in the housing market, the increasingly common business model clearly irked some on the forum.
"Pay x hundred thousand dollars for the chance to apply to rent a house you like? Contingent on getting other suckers to chip in the rest of the purchase price upfront? Yeah, what a great deal, sign me up."
Others suggested the emergence of these types of companies signalled the last bit of air was being blown into the widely purported Australian housing bubble.
"This will be used as a future benchmark for how insane the property bubble was," wrote one Reddit user.
"When this sort of thing is an option, you know the end isn't far away," another chimed in.
DomaCom listed on the Australian Securities Exchange in November 2016 after raising over $7 million. Despite having at least one high profile investor on board early on, the company's share price has shaved more than 70 per cent of its value since the float.
According to the company's latest financial report from June 2017, at the time DomaCom held 43 properties on the platform.
"DomaCom is the leading Australian Property Crowdfunder with capital raised for properties across residential, rural, and commercial sectors and with properties situated in all six states of Australia," the report said.