Why The Property Investing Industry Needs A Shakeup
It’s no secret that Australians have a love affair with property. I mean it’s the ‘Australian Dream’ to own your own home, right?
While many other countries around the world have higher percentages of rental properties, Australians have always been infatuated with saving up enough money to eventually buy four walls that they can proudly call “home”. A place that they can raise their children and create memories that they will cherish forever.
it’s no secret that house prices within Australia have risen rapidly since the recovery from the Global Financial Crisis. This is making it harder for Aussies to save up that dreaded 20% deposit for a property to avoid paying LMI.
Median house prices in both Sydney and Melbourne have risen sharply over the last decade. According to Domain, the median house price in Melbourne has risen from $553, 693 to $855,428 (that’s an increase of 54%) between 2010 to 2019. Over in Sydney, the median house price has risen from $643,073 to $1,079,490 over the same period. That’s an increase of 68%!
This has frustrated many young Aussies who were hoping to break into the property market, for an investment, an upgrade, or purchasing their very first home.
It was clear that the industry needed a shakeup. A way for properties to be more accessible to everyday Aussies who simply can’t afford a 20% deposit.
Property syndicates became popular and gave investors an opportunity to combine their funds to purchase bigger, more expensive properties and share the profits. However, they were still very difficult to access for everyday Aussies.
The Rise Of Fragmented Property Investing, Or “Bricks”
Whenever a problem arises, or in marketing terms, a ‘gap in the market’, appears, an opportunity arises for creatives to develop a solution.
And in 2014, that’s exactly what happened. Anthony Millet founded ‘BrickX’, a company that allows Aussies to purchase a portion or share of a property with $50. Yes, only fifty bucks! Within the industry, these small shares of a property are referred to as ‘bricks’.
This concept paved the way for other companies such as ‘Bricklet’ to join the party, giving even more opportunity to everyday investors to break into the seemingly untouchable Australian property market.
What Exactly Are ‘Bricks’ And How Exactly Does It All Work?
Businesses such as Brickx and Bricklet start by purchasing an entire investment property. They then divide it into numerous even portions they call ‘bricks’. Brickx, for example, divides each of their properties into 10,000 even bricks. Each brick is valued on numerous factors such as the price of the property, it’s growth potential, the suburb, and the property’s rental yield.
People can buy or sell bricks based on their value at the time, the same way people buy and sell shares. Just like shares, the value of the bricks goes up and down based on the performance of the property. In the same way the value of shares of a company goes up and down based on the companies performance.
Another comparison can be made between bricks and shares regarding how they generate income for the investor. Both bricks and company shares generate income in two ways. Firstly, through capital gains (the value of the asset going up). And secondly through regular passive income generated from the rental payments or dividends the asset generates. Companies listed on the stock exchange can pass a portion of their sales onto their shareholders through ‘dividends’. Investors in bricks receive income in a similar fashion. They’re entitled to a portion of the profits generated rental costs of the paid by the tenant. This is assuming the property is tenanted and the costs associated with maintaining the property are smaller than the incoming rent.
The Future Of Fragmented Property Investing
Proven investment vehicles such as stocks, bonds, (whole) property, and savings accounts will continue to remain as staples in everybody’s investment portfolios for the foreseeable future.
However, due to the constant growth and improvement of technology around the world, new ways will continue to emerge for more people to begin their investing journey quicker, easier, and with lower costs.
The reality is, ‘brick’ or fragmented property investing is still a relatively new concept. Fortunately for the industry, they’ve enjoyed a thriving global economy since its inception in Australia in 2014. But in reality, the industry is yet to be truly tested during an economic downturn. Although the data is limited currently, I have no doubt the economic impact of COVID-19 will challenge the entire industry.
On the surface, it seems like a great idea and concept. Bricks provide investors with an opportunity to own a part of a lucrative and profitable investment property, and reap the rewards from it at a very low cost.
Each different property, however, and carries its own element of risk. The growth potential of a property is dependent on numerous factors such as the suburb, the surrounding area, and consumer confidence.
Basically, do not just invest in any property that you see on a Brick website because of how cheap a brick seems. Just because you can own a portion of a property for just $50, it doesn’t mean you should.
If you are interested in purchasing a brick of a particular property, it’s fundamental to evaluate its growth potential and risk level among other things. The same way you should if you were looking at purchasing a share of a company.
The Money Pal Verdict
Time will tell if this method of investing is here to stay, but I certainly do find this model interesting. Should you find a ‘Brick’ that interests you, the same principles apply for investing in any other asset class. Ensure that its money you can afford to lose and that its part of a balanced and diversified investment portfolio. This will limit your risk and exposure to the frantic and unpredictable nature of the current economy.
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Disclaimer: This website (the “The Money Pal”) is published and provided for informational and entertainment purposes only. The information in this Blog is general in nature constitutes the Content Creator’s own opinions and it should not be regarded as financial advice.
About The Author – Christian
Christian is a passionate and devoted financial writer. His love for finance originated during his time at University where he studied business, economics, and finance extensively. Christian is keen on consistently improving his knowledge on investing and personal finance, whilst also making the topic more of a prominent talking point amongst Millenials. Christian finds his happy place having a yarn about all things finance, current affairs, and his beloved Collingwood FC over a few independently owned craft beers.