There is a Chinese curse, which goes something along the lines of, May he live in interesting times. For the property industry things are definetely getting interesting.

For generations Real estate has been the tool of choice for wealth creation in Australia. The past few years in particular have seen a rapid rise in property prices, especially in Sydney and Melbourne.

But as the winter of 2018 drags on the headlines are getting steadily ominous. To a large degree news media has adopted the chicken little routine of sky is falling to sell papers for some time now. But it seems clear a reckoning is due. Whether it is a bit of a slowdown and then another take off or a prolonged plateau and a crash remains to be seen.

However it does not change one thing, people will always live in a house and most of us will want to own one. Those suggesting that the young generation does not care as much about home ownership are sorely mistaken as 3/4th of all young Australians continue to want to own a home.

In addition Australia is locked into long term mass immigration. A large number of people from India and China are going to come in and make Australia home. Australian property prices as compared to their home countries and the quality of housing/lifestyle that goes with it makes buying property in Australia a no brainer decision for them, especially when you add the culturally ingrained preference towards buying real estate.

Long run demand for property in Australia is going to be fine.

But as Keynes famously noted, in the long run we are all dead. What matters is what will happen in the short to mid run.

Property is a unique asset where banks are happy to lend you upto 95% of its value. No other asset comes even close. This high lending ratios, coupled with historically low interest rates mean there was a sudden deluge in the market of buyers.

The increased demand ramped up prices. And with the rise the equity or deposit portion became proportionately larger.

Now the banks are slowly turning the taps lower. The US and Europe have started increasing interest rates and although the RBA remains on hold, the fact that Australia is a net capital importer means Australia’s hand is going to be forced.

Interest rates will go back up. In addition banks are tightening their lending criteria which means investor loans, interest only loans etc are harder to come by. Deposit requirements are increasing and instead of just 5% deposits more often than not you now need 20 or even at times 30% of the end value.

This is a prudent thing to do on part of the banks as part of good housekeeping. And while it inflicts short term pain on the buyers it is actually a good thing for them too.

You see debt can be really bad in a turning market. In 2008 as the property prices in US crashed, a number of house prices became lower than the mortgages on them. Which means you could not even sell without making a loss. And with the economy slowing down, jobs were harder to come by in the neighborhood. With no renters or the ability to sell to move to another city with jobs, many people simply walked off and handed in their keys.

Debt by its very nature is inflexible. If property prices go up, it works great for the buyer. But if prices go down it can really produce a lot of damage.

But buyers still exist and so does the desire to own a home. A number of these buyers would find it much easier to service the lower amounts of debt, but have no realistic timeline of how they will come up with the larger deposits now required.

That is where the KONKRETE Fractional property fund comes in.

We are setting up an innovative structure which will allow people to crowdfund their home deposits or release equity from existing properties. This crowdfunded money will be set up not as debt, but as an equity participation. The investors will receive exposure to the capital gain and the buyer is not liable for any interest payments or on the hook for any debt liabilities.

If the property prices go up, then both the investors and the buyer does well. But if the market flat lines or goes steady then the equity proves much more flexible and will adjust downward accordingly.

Unlike other fractional platforms, buyers can own the property in their own names and take advantage of any first home owner grants, stamp duty concessions etc as well as having a reasonable amount of debt. Debt by itself is not bad, it is only when it becomes too much do things go haywire.

We at KONKRETE are looking to form partnerships with buyers advocates, mortgage brokers, real estate agents and other professionals from the real estate industry who recognize the value it can generate for their clients.

Australians will always want to own a home and with the power of crowdfunding using KONKRETE, they can now bridge the gap needed to reach the deposit requirements and make their house a home.