A Slice of Sydney’s Property Market for Less than $100?

Sydney’s property market is notoriously difficult to get into. Just ask anyone around my age who hopes to purchase a property one day – it’s quickly becoming a fantasy.

In fact, with news this week that the median Sydney house price in Sydney has surpassed $1.15 million and 78 Sydney suburbs have surpassed the $2 million dollar median, the ‘Australian dream’ of owning a house on a quarter acre block is further and further out of reach. Even unit prices are increasing so much it is difficult to keep up, with Sydney’s median unit price reaching almost $720,000 this quarter.

So what if I told you that you could get into the property market for less than $100 dollars. Would you believe me?

Technically, you can. BRICKX is a young company that is making waves in Australia for its concept of buying ‘bricks’ in a house.

It’s called ‘fractional investing’ and each property the BRICKX group purchases is divided into 10,000 ‘bricks’ (or shares). The BRICKX portfolio currently consists of 8 units in premium areas in Sydney and Melbourne including Bondi Beach, Mosman, Double Bay and Prahran.

The website includes a detailed rundown of each property, the price it is valued at, the amount of rent it is generating, as well as expenses and outgoings. They boast ‘instant ownership’ in that you can purchase your slice of the property using their user friendly website in less than 15 minutes.  The properties are rented and you receive this income in dividends, minus expenses. BRICKX earns 1.75% commission on each transaction on the platform (buying and selling bricks incur the fee).

While the idea that you are getting your foot in the property market sounds great, it might be deceiving. Investors are capped at owning 5% of a property’s bricks. You obtain very little rights that you typically enjoy by owning a share in a property, and are unable to use your investment as equity to help you obtain a home loan if you can later purchase a property. In fact, the BRICKX system is little more than investing in shares and the ‘brokerage charge’ of 1.75% might end up steeper than most in the share market depending on the number of bricks purchased.

To give you an example of how the concept works, the BRICKX property in Bondi Beach is currently selling bricks at $97.00. For the month ending March, once expenses were paid, investors were paid 14 cents per brick. You would probably make back at most a few dollars a year, and it could take over 40 years just to make back the original investment if the property is continually tenanted and maintenance costs remain low. In contrast, shares in Westpac are currently $31.32 and last paid a 94 cent dividend for 6 months, or 15 cents per month.

The difference with BRICKX is that it banks on capital growth. Every six months the property is revalued to see if there is equity in the property, which hopefully increases the value of your bricks.

Something to note is that every 5 years, BRICKX arranges a vote amongst the Brick Holders of each property to determine if they wish to sell their property and cash out or keep the property on the platform. If over 50% wish to sell, the property will be put up for sale. Brick Holders can also collectively agree to sell the property at any time. This means you might have little say in whether you wish to continue your investment.

While there are whispers that such a new company may be unsafe, from a legal perspective, BRICKX has purchased each property through a separate trust held by a trustee called Theta Asset Management Limited. In the event that BRICKX’s business was to shut down, the trustee Theta would either appoint another manager of the trust, or wind the trust up. Each property would then be sold and the funds would be returned to Brick Holders. So in that sense, it is pretty safe.

I think BRICKX is banking on people that want to feel like they have a slice of the property market. This shows when you consider that the majority of those investing in Bricks are under 34 years of age. BRICKX appears to be just a different method of buying and selling shares, perhaps with less risk and less return. There’s really no shortcuts to property ownership, unfortunately.

The information contained in this article is not legal advice. This article is intended to provide general information in summary form only. You should not rely on the content of this article as legal advice. If you would like advice specific to you and your situation, please contact us. 

Posted in LCOR