Could changing the way we purchase and own property make a difference?

Could changing the way we purchase and own property make a difference?

Friday FeedbackIn the current market developments are designed to sell rather than serve as an instrument of long term cash flows, the conundrum for sellers and NAMA alike is that they want sales but not at current firesale prices.

At the same time bank funding has dried up, this year we are likely to see mortgages issued at a rate last seen 40 years ago in 1970! Let us not forget that even in 1972 there were more mortgages drawn down and that was a year that had a 6 month bank strike included in it!

Private investors have short term problems of annual leases and this means incentives to keep the general property in top condition become limited, anybody who rents knows the difference between ‘rental standard’ and ‘selling standard’.

Smart Taxes is a taxation think-tank in Dublin and one of their members, Architect James Pike is championing the cause of ‘Equity partnerships’. This is where a development is rented out entirely and if a person pays over the standard rent they can buy equity in the property.

The financing of the property would come from pension funds who like the idea of lots of cashflows within an investment (it tends to provide lower risk) and most importantly it provides flexibility – if you found you had less money you could stop buying equity and just be a renter without moving. Equally you could sell your equity if you want to move, or if you bought your equity outright you would only have to pay service charges.

If a person had a severe inability to pay in the short term they might repay with the equity they bought already, the options and ideas are endless, but the main ingredients of removing banks from the equation and forming more realistic working solutions for buyers is inherent.

An Equity Partnership has four key members:

  • Equity Partnership – holds the freehold of the land, through a trustee, in perpetuity
  • Occupier – the individuals who occupy the properties on the land.
  • Investor – the consortium of individuals and enterprises who invest money and / or money’s worth (such as the value of the land) in the equity partnership.
  • Developer / Operator – who provides development expertise and manages the equity partnership once the development is complete.
So you are left with a developement where people can have some level of control on their property outgoing to suit their lifestyle but without having multiple landlords (who may not all have the same agenda/standards of upkeep etc.), and also providing the option of ownership where it is wanted, too good to be true? Why don’t we debate it a little?

Does an idea like this make sense? Do you see any pro’s or con’s with it? As always, we are looking to you dear readers to point us in the right direction!

Karl Deeter

(Twitter @karldeeter)

 

Karl Deeter is Operations Manager with Irish Mortgage Brokers in Dublin and a Director of Advisors.ie, Accountants and Auditors

There are 19 comments for this article
  1. türbanlı porno at 1:24 pm

    Good idea Karl, could take a while to get off the ground here, but could be a good one all the same

  2. karl deeter at 12:21 pm

    @Paddy ‘Not a believer’ – to say that a commission earner is somehow price aligned is to misunderstand the entire incentive scheme (whether that scheme is good or bad is a different argument). Commission earners want transactions, not prices, there are those that say that all estate agents are somehow ‘bad’, but that is to either assume that therefore the alternative of ‘no estate agents’ or private sellers representing themselves is somehow better or more efficient. Every year we are involved in thousands of property transactions, and personally I am involved in several every year of different types and it is based upon experience rather than observer opinion that I can say that estate agents serve a market purpose and are generally good at what they do. If there were shysters out there they have mostly been washed away at this stage, and the existence of a few rule-breakers isn’t a basis for eradiction of the rest (or we’d agree with genocide on the basis that at any given time there are rule breakers in society).

    The population/land statistic ignores infrastructure (or lack of it) the occurence of cities with viable jobs, planning restrictions, the quality of land for the purpose of building (or farming for that matter), you can’t compare locations using demographics if you ignore geographic matters as well.

    None of this is a ‘justification’ for anything, be it greed stupidity or otherwise.

    @giraffe the other jurisdictions were in Nordic countries, the guy who created the concept (or rather brought it to fruition) was Chris Cook in the UK. The valuation of the equity would obviously change over time as prices change, but you could have modifiers in there which don’t cause distortion or protection for buyers – such as fairly long term fixed rates which can be achieved through changing the financing of the projects away from banks.

    @Diaspora Retiree – I totally agree, Israel has a great approach to their diaspora and it really serves the bottom line of their economy and their ability to reach around the world and do business, the hard part would be getting Government here to play ball, we make it hard for our own European emmigrants in many respects (and worse for the non-EU ones), so wanting to do anything here with heritage being the qualifier may be a politically tricky thing to achieve.

    @Owen McCarthy – we covered an idea not a million miles away in a previous post about ‘moving paper’ where you buy the sellers mortgage and in doing so take over the property purcahse – obviosly the difference in mortgage and selling price can be an issue (in either direction) but it could be a partial solution apart from seller finance which puts risk entirely onto one person rather than having an instutional route

    @Jane – a pension fund buys an estate, in turn people ‘rent’ houses, if you pay over that rent you buy ‘equity’ (ownership) of the property over time. This equity can be sold, traded back or eradicated. The pension fund get a cashflow from an underlying asset (the estate/development) which is fairly stable and has recourse to the property itself, the people involved get more choice and it is affordable. hope that helps!

  3. Jane at 8:21 am

    Can you explain this proposal in simple english for the ordinary person please Karl?

    Jane Mc

  4. Abdel Elsayed at 9:40 pm

    I hope if there is way for swabbing houses
    swab sale to sale or rent to rent

  5. marie at 11:02 am

    i think SOMETHING needs to be done to get houses selling again- maybe this would shake the banks up and they would start giving people mortgages ( in a sensible way!) again too? houses in the U.K. have gone up in the last few months and the ones in my home town are going like hot cakes! i want to go home so badly and i am trapped! what is the U.K.doing in terms of the property market that Ireland is not? ANYTHING that can help the property market in this country would be good but it would be no good to me if Irish prices dropped so low and U.K prices continued to rise- my house is in turn-key condition and VERY reasonably priced; But this is all very well if its just chat, something needs to be DONE!!!

  6. owen MacCarthy at 11:07 pm

    I worked in Toronto and did a lot of conveyancing there. It was common practice there for the seller to “take back” a mortgage from the buyer. Effectively the seller financed the deal, often for 5 years where ,perhaps, only interest was paid and then there had to be refinance at the end of the five years. I do see problems in Ireland, trying to do that, but it might suit some situations and, maybe be adjusted to suit the situation. The seller would get a mortgage from the buyer, as security,for payments. Of course if the seller requires all his money then it will not suit, but it could create movement and may suit. Any views.

  7. DIaspora Retiree at 8:32 pm

    Ireland needs a new class of visa which would enable non EU retirees ( e.g.Australian or US) with Irish heritage to stay longer than a three month tourist visa. Ireland is missing out on this source of exhange. Diaspora, superannuated retirees wanting to lease long term or buy and are prevented from doing so by only being able to get a three month non-renewable, tourist visa. A new class of visa could have verifiable criteria built into it which would protect Ireland from short or long term cost.

    Diaspora Retiree

  8. giraffe at 8:19 pm

    Worth consideration but I suspect the devil would be in the detail. For example – if you pay in €1000 now or €1000 in 10 years time does it buy the same amount of equity? If not, how is it calculated? This could become very complex, with potential for unwary householders to be seriously ripped off. On the other hand the email alert I got said these “have been used in other jurisdictions”. Where? Perhaps they found a way to avoid this danger?

  9. Paddy not a “believer in estate agents” at 8:04 pm

    I do not expect a “believer in estate agents” to agree with my earlier comments as the core of my argument is that Irish housing is still seriously overpriced, something which no commission earning member of the property selling industry will agree with. That thousands of gullible Irish house buyers, all of whom could have rented, have during recent years been sold overpriced shoe boxes does not mean that the rest of the population must accept high priced housing and somehow share the pain. At 120 people per square km Ireland is relatively sparsely populated (much of Europe has 400 to 1000 per square km), there is no justification for high land or house prices, we need reasonably priced property so that costs can be lowered and international competitiveness restored.
    We all make our choices and must live with the consequences of our actions, both good and bad. During the boom I was put off attending family get-togethers, dinner parties, etc as listening to braggarts boasting of their property portfolios and how clever they were, it put me off my food. This mentality permeated society; one could hear the same nonsense in D4 or D11 or in a pub in rural Roscommon. My own developer brother in-law asked me to invest in a property scheme, fortunately I had the sense abstain, he is now bankrupt and the property is with NAMA.
    Put the lot under the hammer, the buyers can join a few shoeboxes together and sell them on, or demolish and plant corn, or complete, move in and live happily ever after. Just do it quickly and stop justifying the past foolishness, greed and stupidly of much of our society.

  10. karl deeter at 5:46 pm

    @pflowerew agree, it wouldn’t do any harm to change aspects of the funding model, it was after all the very genesis of the entire bubble! (this time around).

    @Mary the freehold would be held by a trustee, the owners of equity though would be the people occupying the property who pay/paid for it. The underlying land couldn’t be yanked out from under them.

    @Donie Horan I haven’t seen the swap site, but there is an issue there of disposal and gain even if your bottom line doesn’t change, I don’t know if that is being adequately highlighted. Whereas if you actually sold your property you can sell it with no capital gains (assuming its the primary home we are talking about). If you can’t evidence the consideration (payment) it could be an issue. I must look into this though, sounds interesting, thanks!

    @Martin Kelly – I have gone to a few talks with James to various departments, it is under loose consideration, so with any luck we’ll find out whether it works or not in real life some time soon!

    @Paddy Smells A Rat: I accept that there is a price issue within property supply/demand. But even in parts of the US of which I am familiar where repossession/re-sale occurs rapidly you don’t get the result you are aiming at.

    Nor does it make sense to knock down a building that culd be utilized for housing, we have a large amount of stasis in the market but it is not all price related, lots of property is not for sale that should be due to NAMA etc. and shoe-box apartments would be better turned into large units that might sell, love the participation but don’t agree with you on this one!

    @Mags I don’t know that auctioneers are responsible for price drops, why do you think that is the key?

    @George Connolly, where do you want to buy? I am a believer in estate agents so a good first step is to get talking to the ones that operate in the area you want to buy in perhaps?

  11. George Connolly at 5:29 pm

    I’m interested in paying cash for a cottage. Can
    you direct me to anyone?

    Thanks

  12. Pingback: Equity Partnerships on myhome.ie – Smart Taxes Network
  13. mags at 5:00 pm

    i think it is a lack of funds within the banks and that properties prices are going to keep falling as long as auctioneers and real estate agents are in control of the sales in my view they are only after their own % because each sale is part of their income

  14. Paddy smells a rat at 4:19 pm

    As I have written before in this blog; every house will sell when it is available at the correct market price. To sell all the empty and ½ built houses in Ireland just put them under the hammer with no reserve, they will all sell, even if only for a few hundred Euro to be knocked down and returned to farm land. Shortage of funds is not the biggest issue, people are not buying because the prices are too high and price rigging schemes with names like ‘Equity partnerships’ are proposed from time to time in an attempt to shift properties on to the gullible at higher than market prices. Just browse through Daft or Myhome.ie to see the depressing selection of houses available for sale at very high prices, reality still has not entered the minds of the Irish property industry ‘experts’ who sold those overpriced horrible little boxes of houses and flats to their fellow countrymen and women during the boom years.

  15. Martin Kelly at 4:09 pm

    Good idea Karl, could take a while to get off the ground here, but could be a good one all the same.

  16. Donie Horan at 3:48 pm

    Great idea – anything that helps promote property transactions , with or without the full involvement of the Financial Institutions, has to be welcomed.
    The idea of Permanent Property Exchanging between parties(see Daft House Swop site) should also be encouraged to move things along in this dormant market.

  17. Mary at 3:38 pm

    It is an extremely feasuible idea. However, the Irish ancestral memory is likely to have issues concerning freehold of land being held by faceless “absentee landlords”. Therefore, I would suggest that some measures would be written into the process to enable outright purchase of the Freehold.

  18. pflowerdew at 3:38 pm

    Great anything that takes the monopoly in money handling away from our present banking system has to be good, but a sound idea anyway.

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