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DomaCom revealed in a disclosure to the Australian Securities Exchange that it has obtained a $100 million lending facility, which will be used for the acquisition of up to $250 million in property, from a consortium of institutional private lenders.
This means that the private lenders will be able to provide non-recourse loans to those using the DomaCom platform to crowdfund mortgages through custodian Perpetual.
The fintech also announced introducing a new capability for financial advisers to simply select the debt level they are seeking for a property investment, with DomaCom managing the rest.
“As the loans are non-recourse and will be secured against the properties and taken out by the fund, investors and advisers will not be required to complete any loan application or provide servicing information,” DomaCom CEO Arthur Naoumidis said.
“The fund has a conservative loan-to-value ratio of no more than 60 per cent and the sub-funds holding the property and related loan must be positively geared. The rental income must cover all expenses including fees and loan repayments.”
The fintech is also in discussions with banks about providing additional lending facilities so that advisers have more options to choose from for their clients’ property investments.
DomaCom’s online platform, which is registered as a managed investment scheme, enables the SMSF market or other long-term investors to fractionally acquire residential and commercial property through a specially designed trust structure.
“In an environment where obtaining investment loans is becoming more difficult, we believe a leveraged property investment with a relatively low LVR that is positively geared will be attractive to financial advisers,” Mr Naoumidis said.
Last month, the fintech announced that its platform was used by Newcastle-based Shartru Wealth Management to raise $1.6 million across two crowdfunding campaigns for a retired client to purchase a residential property in Melbourne.
“An investment option returning 5.06 per cent and secured by first registered mortgage with a low LVR [of 60 per cent] is attractive in today’s environment where retirees are lucky to receive a 2.5 per cent return from term deposits,” Shartru Wealth CEO Rob Coyte said.
Speaking to Mortgage Business sister title The Adviser earlier this year, Mr Naoumidis said that the problem for today’s retirees is that when they had their financial plans established a decade or so ago, the forecast for income growth was 5 per cent, which is significantly higher than the recently recorded rate of 0.7 of a percentage point (for the three years leading to December 2017).
“A return of 2.5 per cent [from term deposits] is not enough,” the CEO said. “If you’re a retiree, your capital is supposed to last you all your life, and all of a sudden it’s not covering itself, so you’re eating your capital to live. There’s a big hunt for yield, but retirees don’t want to take risks; they don’t want to invest in equities because you’re taking on capital risk.”
Mr Naoumidis also said that, contrary to public anxiety about the potential “death of property” in Australia, there will always be a demographic driver for property as long as Australia’s population continues to grow. But the structure of ownership will evolve.
While DomaCom is currently focusing on retirees, the CEO acknowledged that the rise in fractional property investment activity presents a compelling opportunity for home buyers of the future. According to research from the University of South Australia, younger Australians (aged between 18 and 24) are more likely to engage in online fractional property investment than those between the ages of 25 and 34.
Mr Naoumidis agreed that younger users are more likely to live in the property they set up a crowdfunding campaign for due to high prices in capital cities, and that such DomaCom users would have to apply for tenancy as per usual, but they will be considered a priority tenant.
In the near future, Mr Naoumidis said that users will be able to use DomaCom to select blocks in a chosen suburb (using a map-like interface) that appear to be underdeveloped and find out whether the land is up for sale. If the land is on sale, the user can launch a crowdfunding campaign to fund the purchase of the land and the development of property on top of it.