Why existing fractional property platforms do not work
There are several fractional property platforms worldwide. Property must be made more liquid to ameliorate some of the issues its high prices it causes.
Almost all the Fractional property platforms currently in existence in Australia and worldwide are focused on allowing people to invest in property with smaller amounts by allowing them to buy a share of it.
But just allowing people to buy a fraction or share or token of a property is a solution in search of a problem. You see, no one is losing sleep thinking that they cannot buy a fraction of a property with $100.
What people are really struggling with is saving enough money for a deposit. And on the other side those who have already bought property and have seen it appreciate in value want the ability to access that wealth without taking on additional debt.
Both of these problems are not being solved by existing platforms.
What we have instead is the so called platforms promoting their own properties and selling them at an overall higher price to unsuspecting buyers by dicing them into easy to buy units. Unsuspecting mum and dads fall for the marketing spin of being able to own property only to find that these fractions have only gone down in value after investing as the reality of the market price catches up.
Good business for the platform, but a bad investment and more importantly not actually solving the real issues in the market.
Truth be told, even if they wanted to these existing platforms cannot really solve the above mentioned problems. And the reason is the way they are setup.
All of them buy the property in a unit trust and investors then buy units or fractions. The net result is a beneficial interest in the underlying property.
So far so good.
But it means that if someone wants to crowdfund their own home deposit, the title is always only going to rest with these platforms. And even worse if someone already owns a property and wants to release equity, he or she would have to first transfer title to the unit trust. This would lead to a stamp duty event as well as a capital gains tax event due to the transfer of title. Its a dead on arrival proposition.
The problems go even further.
Almost all of the platforms are either full equity or will limit to lower leverages and positive cash flows. An astute property investor knows property is interesting due to leverage. The platforms have belatedly started recognizing it and are trying to introduce borrowings in the mix. But given that they are liable for it their financial issuers will always restrict the LVRs to the 30–40% mark and go for a loan with reduced liabilities but higher interest rates. All of which severely dilute the benefits of leverage.
But these problems can be solved. We can setup a fractional property platform that actually solves the problems faced by the common man.
And that is what we intend to do with konkrete.io
More to follow.