The lure has been strong enough to build cities. When Canberra, the nation’s capital was built, the commonwealth government promised three bedroom red brick bungalows to attract workers to the public service.
So it only made sense that when P2P arrived on Australia’s shores, it would go for property.
“Australia has always had a strong love affair with property,” says Scott Price, founder of Property Shares. “People were told from a very young age about the great Australian dream of owning your own home. The birth of P2P is giving them the opportunity to participate in the property market without owning your own home.”
A lifelong property developer, Mr Price got the idea to merge fintech and the property market from his time working in Silicon Valley. On returning home, he founded Property Shares, which has become one of the largest Australian P2P companies offering exposure to property.
“I saw it first hand in the US and thought it was a great idea. There wasn’t much fintech in Australia at the time, so we had to do a lot of work in the property space to get the product up and running.”
Property Shares runs a managed investment scheme. When potential borrowers approach the company, they agree to put up property in a trust fund in exchange for a loan. Investors, having fronted the cash, then become the beneficial owners of the property and get exposure from the debt or equity issued by the trust.
Most properties up for investment are in Melbourne, where the company is based. Investors are free to choose which property to invest in. Borrowers vary from land banks to property developers to asset-backed loans. “We look at debt investments from first mortgages down to preferred equity as well as property backed loans,” says Mr Price.
While Property Shares offers both debt and equity, Mr Price says there is a preference, at least in the short-term, for debt.
“The difference between debt and equity P2P models is that you can own a fraction of a property and wait for the capital gains or you can invest in debt and earn interest returns today.”
The company makes money through establishment fees, taking a percent of the rate passed on to borrowers. There are no management fees or performance fees. There have been no defaults.
While the Australian property market is wide and deep, Mr Price initially faced an uphill battle. With no brand recognition and “fintech” a buzzword known only in small financial circles, things started in a low gear.
“In the beginning, while building credibility, we focused on education. And as we build traction we are seeing an increase in organic growth of not only borrowers but investors.”
And with growth on all sides - of the fintech industry, the property market and Property Shares - Mr Price has up scaled his ambitions. “In the next few years [we want] to increase volume to half a billion in transactions, we’re building our deal flow channels. We’ve got a lot of appetite.”
But he remains cautious not to overextend. “We’re not cowboy lenders: we’re not going to take every deal. On average we fund about one in twenty deals that we see.”