Future of home ownership – time to think outside the box?
Home ownership has always been central to the Great Australian Dream, but for many, that dream may feel increasingly unattainable.
This reality has prompted some thinking outside the box, giving rise to a number of purchase models aimed at helping first-time buyers plant a foot on the property ladder.
Teaming up with siblings or friends to pool income and improve borrowing power has become popular. Alternatively, some parents or grandparents gift inheritances, while still alive, to assist young family members get started.
These options are not new, but here are three ideas you may not have heard of.
- Build-to-rent-to-buy
Purpose-built housing is rented to tenants, who then have the option to purchase the home after a set period.
| Pros | Cons |
| Rental time allows additional saving. | Rent is often higher and can make the property more expensive overall. Not all rent is contributed to property credit. |
| Some agreements offer fixed or capped purchase prices. | Changes in financial situation or deciding not to go ahead with the purchase, may result in loss of some or all accrued property credit. |
| Leases are generally longer providing a sense of housing security and permanence. | A relatively new scheme in Australia; some quirks are still being ironed out. |
Bottom line
Build-to-rent-to-buy is not a shortcut, but can offer a realistic opportunity to enter the property market.
Companies offering this model are usually large developers and specialist not-for-profit organisations.
- Community land trusts
Community land trusts (CLT) are provided by not-for-profit organisations where land is owned by a trust, and individuals purchase only the dwelling.
| Pros | Cons |
| A reduced purchase price aimed at low/moderate income earners. | Typically involves an ongoing land lease fee. |
| Established research and pilot programs have been underway for over a decade. | Resale value usually capped to ensure future purchase affordability. |
| Offer protection from market price volatility. | Less flexibility when selling. |
Bottom line
This works because land is generally the most expensive part of the property price. By removing the land cost, the final purchase price is significantly reduced.
CLTs are niche but becoming more popular, which means greater property availability and lenders are more willing to approve finance.
- Fractional ownership
While similar to buying with a sibling or friend (either as Joint Tenants or Tenants in Common), fractional ownership is a commercial arrangement that involves setting up a company or trust in which the purchasers own shares.
| Pros | Cons |
| Lower entry and ongoing costs. Expenses are shared between owners. If property value rises, your share does too. | Decisions about the property are governed by legal documents. Disagreements can be complicated. |
| This structure allows for investment across multiple properties. | Can attract financing difficulties and higher interest rates depending on the trust set-up. |
| Access to better quality properties. | Less flexibility when selling; limited buyers. |
Bottom line
While fractional ownership can make purchasing property more accessible, it adds a layer of complexity that can reduce your control.
It works best if you’re comfortable co-owning. For many Australians, though, its unusual structure may be too far from our vision of home ownership to be a viable option.
Ultimately, getting into your own home is as much about what you can afford, as what won’t keep you awake at night.
While the Great Australian Dream is definitely still alive, homeownership is evolving.
Before entering into an agreement; before signing any contract; before making any decisions, it’s vital you seek professional financial advice so you can move forward with clarity and a plan you’re comfortable with.
The information provided in this article is general in nature only and does not constitute personal financial advice.
