The Future of Home Ownership
Over the next decade we can expect to see, not only changes in types of home ownership, but lending criteria, investment structures and taxation – at the very least. The first change is already underway – according to Justin Butterworth, founder of online rental marketplace, Snug, renting is not just somewhere tenants are forced to be but the “preferred housing choice”. He goes on to say, “The days are numbered for taking on a 30-year mortgage on a concentrated investment in a quarter acre block that our parents grew up with”.
So, how will this likely work?
Fractional investing will become the standard. Already there are numerous platforms catering to multiple property owners who choose to purchase a portion of a property. It’s expected that this type of investment will continue to rise in popularity and, in many cases, the renter will also be a fractional property investor themselves.
What is fractional property investing?
Much like owning units in a managed fund, fractional property investment means the investor owns a ‘share’ of the property.
More will need to change
In line with the change in views of home ownership, more will need to change.
“Capital gains principal place of residence advantage for owner-occupiers needs to be extended to renters who invest in a fractional portfolio of properties, and who choose flexibility and diversification as their property investment strategy. Properties will be increasingly owned by investment corporations and the performance standard of management and renter services will rise to meet market expectations.” Mr Butterworth said.
Anthony Millet, chief executive of fractional investing platform BRICKX where hundreds of investors can have an interest in a single home agrees and sees fractional property investment as a vehicle for tenants to have a more stable renting environment. No longer will tenants live in shadow of a single landlord and their whims.
Will there be other options?
The build-to-rent sector is set to grow as well. Under this process, companies fund large developments, retaining ownership and rent them out as a portfolio. Also known as institutional landlords it has seen great success in rental markets such as Germany, and can provide well-maintained homes and stable tenancies.
“Creating homes and contracts where tenants have more rights, more freedom and are treated and feel more like a homeowner than they are in temporary accommodation is a huge positive,” Mr Millet said.
How we see it panning out
Capital Gains Tax changes may need to be made as there could be a rise in multiple taxpayers jointly investing together, particularly through unit trust type setups. Due to entry prices being high, there could be implications on how negative gearing works or how it may work for fractional portfolios. More food for thought is whether or not the same sort of deductions will be available to portfolio type investors as there are to direct property holders. But, the biggest effect is clearly from the investment point of view – the landscape is about to change drastically which will have a domino effect on tax and related legislation.
If you need advice on taxation, capital gains tax or negative gearing just contact the Oak team.
And if you’d like to learn more about property investment generally or fractional property investing specifically contact our partners at Oak Financial Group.