Is blockchain the key for millennials entering Australia’s housing market?
27 SEPTEMBER 2019
A new style of property ownership is being trialled in South Australia which could allow millennials to eat their smashed avocado and achieve the Great Australian Dream, too.
- Blockchain is making it easier for people to own smaller parcels of property at more affordable prices
- The aim is for joint homeowners to take a cut of rental returns, but fees and risks are still involved
- Founders of a new initiative believe it could make property sales faster and cheaper
It’s a hard slog for young people, low-income earners and single-income households to enter the property market.
Years of painstaking penny-pinching is required to stump up enough for a house deposit, only to be outbid by a baby boomer on the house of your dreams.
But now there’s a new kid — or business — on the block claiming to open the door to property for less than the cost of a house deposit.
The concept sees property divided up into smaller sections and bought and sold through blockchain technology.
“Block-what?”, you say? Don’t worry, we’ll explain that later.
But will buying smaller parcels of property really help people into their own homes sooner, or is the scheme overhyped and risky?
How does it work?
The international technology company behind the concept — Lakeba Group — has divided two Adelaide apartments into 20 portions each, called a “bricklet”.
Each investor pays 5 per cent of the property’s purchase price and, in turn, acquires a bricklet — one twentieth of the property.
You won’t be able to live in your purchase, so you might still need to bunk in with Mum and Dad or your housemates, but — if the scheme is to be believed — you take a cut of the rental returns and any increase to the property’s value when you sell.
However, like buying and selling any other property, it’s not risk-free and investors are subject to the same fees and charges, like stamp duty when you buy and capital gains tax when you sell.
“The upside, downside of the market is still there … the only difference is now that anyone can access it,” Lakeba Group chief executive Giuseppe Porcelli told ABC News.
“Now with Bricklet, even people who have money in their savings account — like [a] small chunk of money, like $20,000 for example — they can have the same kind of investment.”
Buying and selling bricklets also incurs pro-rata costs, with the company charging fees on the transactions.
But the concept is quite innovative in the way it uses blockchain technology to transfer land ownership and carry out the transactions — a program Lakeba Group believes will make it cheaper to buy property.
How is blockchain involved — and will it work?
Blockchain is a word brandished around so commonly these days, but still one that nobody really understands.
Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume.VIDEO: Blockchain explained: the technology behind Bitcoin (Lateline)
Essentially, it’s a technology that records and verifies transactions without the need for an external authority.
You can’t modify any block without altering the entire chain, which makes it an immutable digital ledger.
Selling and buying property using blockchain technology could eliminate the need for lengthy settlements and costly conveyancer and solicitor fees, analysts believe.
University of Adelaide housing affordability expert Chris Leishman thinks blockchain could be the key to making home ownership more affordable — but doesn’t believe the bricklet concept alone will achieve that.
“This is actually quite a welcome innovation [but] it’s not going to deliver a magic solution in terms of affordability … it needs to be combined with something else and some other innovation,” he said.
“But we do think that financial technology, new tenure models, new financial models are a part of the answer in making housing more affordable.
“What we want to see is more research into making housing tenure and housing finance options more flexible and more accessible to people on the margins of home ownership.”
The university is exploring its own housing affordability concept which involves a new tenure model — like blockchain — which could allow a tenant to rent a house and gradually acquire more ownership stake in that property.
“A blockchain-enabled tenure could in theory reduce those transaction costs, so it isn’t punitive in terms of gradually acquiring a fractional ownership right in a property,” Professor Leishman said.
“It’s a new concept that still requires a lot of thought and research to develop.”
Is buying a small portion of a property risky or worth it?
The Bricklet scheme is designed for first-time investors who otherwise might not be able to afford to invest in property and own their own home.
Mr Porcelli said there was a lot of demand for this kind of property investment, with the first 40 bricklets in Adelaide’s tallest residential building, Kodo, so popular there was already a waiting list.
Professor Leishman welcomed the concept but warned other investments, like buying and trading shares, could be more lucrative and help people buy their own home faster.
“In a city like Adelaide, prices don’t grow that quickly like they do in other Australian cities, so you could potentially be putting investment into something that’s going to grow more slowly than other opportunities, such as shares,” he said.
“The other point is even if house prices do grow, the cost of buying a house is going up at the same rate of the value of this $25,000 investment so the buyer never really gets any closer to achieving home ownership.
“We haven’t identified any risks as yet, but clearly this is innovative, it’s a new concept using blockchain to confer ownership rights so it really does require additional research to identify what its barriers are.”
Flinders University senior researcher Dr Matt Fisher was also concerned the scheme wouldn’t address other housing affordability issues.
“Housing stress for purchasers, housing stress for private renters, and the supply of social housing,” he said.
“Housing stress is generally defined as a situation where people are paying 30 per cent or more of their income on housing costs and obviously can apply to purchasers with a mortgage or to those in private rental.
“Housing stress can have adverse effects on people’s mental and physical health.
“Further, the reality for most people is that housing costs combine with costs for other essentials such as food and electricity, which together constitute a major part of week-by-week cost of living.”
Why is this global concept only being trialled in SA?
Believe it or not, the same state that pulled up its tram network and built a one-way freeway is actually a world leader and innovator in property title.
In 1858, South Australia developed Torrens Title — a method of recording and registering land ownership which provides absolute certainty of who owns the land through a Certificate of Title.
The certificate reduces any grounds for dispute litigation because it includes all property details about ownership, easements and rights of way, as well as any finance on the land, including mortgages and leases.
It’s a concept now adopted worldwide, because it keeps the cost of land sale and transfer as cheap as possible.
But the founders of Bricklet believe using blockchain technology will make property sales even cheaper and faster.
Despite eventually planning to take the Bricklet concept global, Lakeba Group said it wanted to trial the idea in Australia — a place where home and property acquisition is regarded by some as the definition of success.
“[South Australia] has a strong understanding of title change, they fully understood the story when we pitched to the Government, and it would make sense for us to start in one state,” Mr Porcelli said.
“In Australia, the property market is a hot topic but worldwide there are so many other items that can be tokenised in the same way.
“We’re in very advanced conversation with some European countries and the state of New York.
“But first, we need to achieve a certain target and goals in our own country and then we can talk about the rest of the world.”