Property editor of the NZ Herald

$500 to get into the Auckland property market?

THE OWNERY
• Offering shares in companies which own Auckland houses.
• Promoting offer as a way to get on the property ladder.
• Investments start from $500, risks listed.
• Offer regulated by Financial Markets Authority.

Questions have been raised about a new company share scheme aiming to get people onto the Auckland property ladder for only $500.

Mark Lister, Craigs Investment Partners head of private wealth research, questioned the wisdom of investing in companies which own individual houses, initially in Auckland.

"Some of the obvious questions are what happens if property prices fall? How much debt is involved in purchasing the houses? How much liquidity will there be for those who participate? And what sort of fees and charges will the organisers be collecting - presumably they are in this to make money?" Lister said.

David Whitburn, a former lawyer and now multimillionaire property investor and expert, said The Ownery scheme was a nice concept but he recommended other ways to get into the market.

"It may be better to pool with a group of friends or family and purchase property to get better control, so you don't have to pay all the compliance costs and overhead," Whitburn said.

"I suspect this will be a more popular investment choice for those in their late teens to late 20s with some savings. I don't view it as suitable for those wanting to contribute big amounts for the house."

There were positives, Whitburn said.

"I like the low entry points - very rare to have a $500 entry point. Nice for people who aren't proficient at saving. I also really like the ability to increase the exposure and buy more shares," he said.

"The management service offered is a benefit to many too. The liability and risks of direct property investment for new investors aren't often thought of, so having it professionally managed is a real benefit."

Whitburn also raised questions about the management fees.

"These have to be factored in," he said. "If they are unreasonably high, some prospective investors will consider the listed property trusts and retirement villages which generate over 5 per cent yields with a strong secondary market in the NZX,"

North Shore-based The Ownery is offering what it calls HouseShares starting from $500. Its founders say it will be a way for people to get into the city's fast-rising market.

Cheaper homes, which first-home buyers might wish to buy, will be a target, they say.

Paul Jacobs and Kurt Settle say they are Kiwis who have returned home after careers in the IT, banking and hedge fund sectors overseas and their offer will be regulated by the Financial Markets Authority.

NZX-listed property entities only offer shares or units in commercial, retail and industrial properties and unlike many countries overseas, New Zealand's financial system offers no way for investors to get into the residential market via the stock market.

The business, headquartered at Smales Farm at Takapuna, says it will offer a new way for Kiwis to build up a stake in the housing market via private company investments.

"Savers can effectively become part owners of carefully selected Auckland houses and get a foot on the property ladder starting with as little as $500. The value of savings at any time will be directly linked to the value of the house, or houses in which they have chosen to save in," a statement says.

Jacobs said younger Aucklanders in particular were facing an uphill battle trying to save for a deposit, with house values rising much faster than available interest rates or increases in incomes.

"Owners can increase their stake in the market over time as and when they have the funds available and will be able to save in the sort of houses that they aspire to buy as their first home," Jacobs said.

People will be offered shares in companies that own and manage a single property. These shares are referred to as HouseShares. The Ownery will charge savers an upfront fee at the time HouseShares are purchased, the business said.

"Each HouseShare company will appoint a professional manager to provide administration services and to select and manage its property. An annual fee based on the value of the property will be charged for these services. These fees will be deducted from net rentals along with rates, insurance, maintenance and other costs. Any surplus can be returned to shareholders as a dividend."

What is it?
• New way for people to get into Auckland housing market by buying shares in indvidual properties
Who's doing it?
• Returning ex-pats Paul Jacobs and Kurt Settle
What are the risks?
• House price drops, bad timing, ownership and management, interest rate fluctuations and getting your money out.

They say it offers a new way for New Zealanders to build up a stake in the housing market via private company investments.

"Savers can effectively become part owners of carefully selected Auckland houses and get a foot on the property ladder starting with as little as $500. The value of savings at any time will be directly linked to the value of the house, or houses in which they have chosen to save in," a statement issued by the company says.

The Ownery co-owner Paul Jacobs
The Ownery co-owner Paul Jacobs

Risks listed include property price changes, buying at the wrong time, owning and managing a property, mortgage interest rate changes and potential problems selling shares: if too many people bale out at once, the repayment might be delayed.

Jacobs said younger Aucklanders in particular were facing an uphill battle trying to save for a deposit, with house values rising much faster than available interest rates or increases in incomes.

"This is making it more and more difficult for younger Kiwis to keep their dream of home ownership alive, as the median price for a house in Auckland edges towards $1 million and banks require minimum deposits," he said.

• People will be offered shares in companies that own and manage a single property. These shares are referred to as HouseShares. The Ownery will charge savers an upfront fee at the time HouseShares are purchased, the business said.

• An annual fee based on the value of the property will be charged. These fees will be deducted from rentals along with rates, insurance, maintenance and other costs. Any surplus can be returned to shareholders as a dividend.

• Shareholders will receive an updated share valuation every month based on QV data and twice a year based on a full registered valuation.

See a company-issued Q and A on the plan here:

- NZ Herald

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