Business News

Fractional investing solution to property risk

Recent concerns about the effect of SMSF investing on Australian residential property prices can potentially be alleviated through fractional investment methods to access the popular assets class, according to a financial services property manager.

“There is a solution around all of this and it’s the fractional model we’re developing and others probably will as well. It’s simply taking some of the characteristics of the equities market that enables the investor to get diversification in their asset allocation and applying that to the residential property sector,” Domacom sales and marketing general manager Warren Gibson told selfmanagedsuper.

Fractional property investing is a technique whereby several different investors purchase a share of a residential property as opposed to one investor acquiring the whole property as has traditionally been the case.

“One of the things people should be paying attention to is the fact we will be offering fractional property investing through a regulated product,” Gibson said.

“In other words, the fractional model will be helping to regulate the property market, so they should be embracing this kind of innovation and development.”

He pointed out the model might potentially mean fewer properties acquired by SMSF investors, reducing the risk of the sector influencing market prices in the future.

“The number of properties purchased by SMSFs will be much less because instead of them going and buying, say, a $600,000 property in its entirety, they may have an asset allocation that only allows them to have a $150,000 property investment, so that’s what they’ll have and it may be spread across three or four different properties,” he said.

The model also provided a solution to the single-asset risk residential property often represented for SMSF portfolios, he said.

Furthermore, the model will provide advisers with a better solution for residential property allocations than they have now and that should help with client retention.

“Right now some advisers are losing a few clients because they can’t give them a property solution, so they’re going to a development company or the like and buying their property there,” Gibson said.

“But with this model the adviser can say there is a regulated product that enables you to invest in a property of your choice up to the asset allocation you need.”

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