Last month Wealth Professional spoke to Warren Gibson of DomaCom, an internet-based platform for fractional investing in property built around an ASIC registered managed investment scheme.
He believed the program, which is unique in Australia and possibly globally, was an ideal solution to SMSF
Gibson disagrees with many recent reports that warn
investors off SMSF property and says it can actually be an extremely valuable offering, and one that will be a growing trend.
He tells Wealth Professional
“The attitude to property in a SMSF is extraordinary for the simple reason that property, like it or not, is the basis of most peoples wealth creation. It is a market four times the value of the stock market and ownership of property has been around for hundreds of years longer than the stock market.
SMSFs are simply another entity in which to hold property just as you can hold it in a trust, individually, within a corporate structure and so on.
I don’t understand the hoo-ha in relation to property in SMSFs – other than advisers who cannot charge FUM fees on it because they cannot advise on it.
Sure some people are pushing the envelope when they create an SMSF simply to hold a single property. There is single asset risk exposure to be considered plus a distinct lack of liquidity.
Property is a legitimate asset class like shares, cash and fixed interest, the only difference being that it is also an all or nothing proposition. In other words you buy a property, or you don’t.
There are of course property trusts and REITS but they buy commercial property - so how does one buy residential property?
People want to own residential property and that includes trustees of SMSFs – which is why we created a fractional model. The fractional model enables property to be broken down into bits in a similar way to breaking down the ownership of a company by issuing shares.
The beauty of the DomaCom model is in using a MIS structure to do so which enables financial planners to advise on the structure and hence include the value in the fee basket.
In terms of the actual property SMSF trustees can choose the property they want from any property on the market in Australia and, with other investors, invest in it in a syndicate like structure.
If enough investors cannot come together then it simply does not happen. We expect advisers will select properties or engage a property consultant to select a few properties and create private book builds for their client base to ensure sufficient capital can be raised to purchase the properties.
This is what SMSF trustees want – choice, transparency, and flexibility. If they wanted anything else they would stay in an industry or corporate funds and let the fund manager choose.
Sure property is a longer term investment and could be tricky for a 50 to 60 year old if they are buying a whole property in a SMSF. It all comes down to asset allocation. If a whole property is only 20% of your SMSF it’s probably not so much of a problem, but if it is 80% or more then it could be a massive problem for someone in their 50s.
And in terms of regulating property, the DomaCom Fund, for example, is a regulated investment so the properties that are purchased are done within a regulated product.
There is a solution around this ‘problem’ that seems to occupy so much space and whilst the product is new, the concept of fractionalising is old.”