Build a de­posit brick by brick

First-time buy­ers can in­vest their sav­ings in the as­set class they plan to ac­quire

Money Magazine Australia - - REAL ESTATE - Pam Walk­ley

Get­ting to­gether a de­posit to buy a home, es­pe­cially in ex­pen­sive city mar­kets, is a ma­jor bar­rier to many of those want­ing to be­come home­own­ers in the cities where they work. You need at least 10% of the price – and prefer­ably 20% – plus all the buy­ing costs.

For ex­am­ple, in Syd­ney, our most ex­pen­sive city, you need a de­posit of be­tween $86,000 and $172,000 for a me­dian-priced dwelling, which was $855,287 at the end of Au­gust, ac­cord­ing to CoreLogic. You also need stamp duty of $34,000 for your first home, and money to cover con­veyanc­ing, in­spec­tions and other odds and ends.

Even in our cheap­est cap­i­tal, Ho­bart, a de­posit of be­tween $43,730 and $87,460 is needed for a me­dian-priced dwelling, which was $437,254 at the end of Au­gust. You will also need $15,600 for the stamp duty plus funds to cover other costs.

First home buy­ers are the tar­get mar­ket for the re­cently launched Smart In­vest prod­uct from frac­tional home in­vest­ing plat­form BrickX. “Po­ten­tial first home buy­ers will be able to save their de­posit in the as­set class they are try­ing to get into,” says An­thony Mil­let, CEO of BrickX.

Smart In­vest sits along­side BrickX’s es­tab­lished prod­uct where in­vestors choose which prop­er­ties on the plat­form to in­vest in, de­cide how many bricks to buy (each prop­erty is di­vided into 10,000 bricks) and when to sell them.

The new op­tion al­lows users to set a monthly de­posit amount that will be in­vested in their BrickX ac­count, with the prop­er­ties cho­sen by a team of an­a­lysts and spe­cial­ists. The port­fo­lio for this op­tion won’t nec­es­sar­ily in­clude all the prop­er­ties on the plat­form. As al­ways, the fo­cus will be on out­per­form­ing re­turns from the Aus­tralian prop­erty mar­ket, says Mil­let.

There are now 18 prop­er­ties on the plat­form: 11 are in Syd­ney, three in Mel­bourne and two each in Ade­laide and Bal­larat. Net rental yields are typ­i­cally low, rang­ing from 1.04% to 2.72%pa, mean­ing in­vestors are de­pend­ing on cap­i­tal growth to earn de­cent re­turns.

So how much of a worry is the pre­dom­i­nance of Syd­ney prop­er­ties given that house prices in Syd­ney have fallen 5.6% in the year to Au­gust, ac­cord­ing to CoreLogic?

“All our prop­er­ties are high qual­ity and in growth ar­eas”, says Mil­let, point­ing to the 2.6% in­crease in value of the Syd­ney port­fo­lio in the six months to June 30. This out­per­formed over­all Syd­ney prices, which fell by 2.6% over the same pe­riod. But since then Syd­ney prices have fallen fur­ther so all eyes will be on the De­cem­ber val­u­a­tions to see if the BrickX port­fo­lio can con­tinue to out­per­form.

The three Mel­bourne prop­er­ties re­turned an in­crease in value of 0.26% in the six months to June com­pared with a fall of 1.8% in val­ues for the over­all Mel­bourne mar­ket. This means six-monthly re­turns from these prop­er­ties ranged from 0.97% to 1.45% (ap­ply­ing 0.26% growth to each prop­erty), no bet­ter than you could earn from park­ing your money in very safe term de­posits or on­line bank ac­counts. An Ade­laide prop­erty in­creased in value by 6.05% in the pe­riod, com­pared with 0.4% growth in the over­all mar­ket. The se­cond Ade­laide prop­erty was bought in Au­gust this year.

Sig­nif­i­cantly, the lat­est three prop­er­ties added to the port­fo­lio have been in Ade­laide and Bal­larat. “We are con­cen­trat­ing on ar­eas that are go­ing through growth phases and iden­ti­fy­ing mi­cro mar­kets that will out­per­form,” says Mil­let. “We’re now start­ing to look se­ri­ously at the Perth mar­ket.” Mil­let says in­vestors should fo­cus on long-term re­turns. Res­i­den­tial prop­erty (9.1%pa¹ over the 20 years to June 2018) out­per­formed shares (8.6%pa²) and cash (4.14pa³) over the same pe­riod. “If some­one in­vests $500 a month with the Smart In­vest op­tion they will save a de­posit of $100,000 in 10 years and one month (as­sum­ing the same long-term per­for­mance). If they saved the same amount in cash, it would take 12 years and seven months. The prop­erty op­tion is 21% quicker.”

The min­i­mum in­vest­ment for the new op­tion is $250. Both BrickX prod­ucts have ex­actly the same fees, 1.75% for each brick bought and sold. All costs re­lat­ing to each prop­erty are de­ducted from gross rental in­come, the prop­erty man­age­ment fee is 6% plus GST and an­nual au­dit and val­u­a­tion fee is 9¢ per brick a year.

(¹Based on CoreLogic home value index with 3% net rental yield as­sumed with re­turns rein­vested. ²Based on S&P/ASX 200 To­tal Re­turn Index, with div­i­dends rein­vested.

³Based on Re­serve Bank cash rate, with in­ter­est rein­vested.)

Pam Walk­ley, found­ing edi­tor of Money and for­mer prop­erty edi­tor with The Aus­tralian Fi­nan­cial Re­view, has hands-on ex­pe­ri­ence of buy­ing, build­ing, ren­o­vat­ing, sub­di­vid­ing and sell­ing prop­erty.

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