Buying Property "Together" in Australia
When sole ownership of property feels out of reach, many look for creative ways to enter the market, such as co-ownership. This includes those looking for residential property or more broadly for commercial investment.
In this article, we outline some options to co-buy or co-own property, including structures for commercial property and options beyond the traditional couple. Banks take their own view when lending to dual parties, which also needs to be considered.
Property Planning
Unlike some asset classes, such as listed shares, property is generally an illiquid asset and it takes time to prepare for sale and to affect a liquidity event.
The other considerations are duties and taxes, there are significant acquisition imposts and holding costs which are unique to this asset class. Given these factors, good planning and setting of expectations between parties is crucial.
Beyond the legal or associated agreements outlined below, parties should start with the end in mind. What are the timeframes for the ownership period? Are they aligned? Will the remaining parties be able to acquire a divesting share and on what terms?
Ownership Structures
- Joint Tenancy
A common approach for couples, where all "titleholders" hold equal shares. In this structure, if one party passes away, their ownership will automatically transfer to the other owner(s). While this is straightforward, it si important to note that the property cannot be transferred to others or left in a will as part of an estate.
- Tenants in Common
Here, ownership is held separately, either as a split or unequal share, with the ability for owners to divest their interest independently of the other owner/s. This is commonly a better structure for non-spousal owners, such as relatives, friends or co-investors, especially if one person knows they plan to sell their interest earlier than the other.
- Collaborative Housing
A structure to buy property as tenants in common, sometimes acting as their own developer before dividing the property into individual titles. The aim is to make owning or renting less cost prohibitive while recognising that owners want their own financial independence. At a macro level, the collaborative housing community is influencing how housing is designed and delivered to the market.
- Special Purpose Vehicles or SPVs
An SPV is simply an entity established for the sole purpose of property ownership. SPVs are a standard structure for larger property transactions and for segregating ownership interests. The advantages are flexibility in changing titleholders, potentially limiting liability and centralising the costs of managing the property.
- Property Syndication
A structured established as a managed investment group with several investors. Typically, capital is pooled to buy property such as large commercial assets via ownership as units in a trust, for example. The investors share income, capital appreciation and the costs proportionately after operating expenses.
This is a suitable mechanism for larger property investments that would be out of reach individually, as it offers a broader exposure to different categories of investment.
Property syndicates cover "retail" investors who are open to the wider market with lower minimum contributions, and the traditional wholesale market with higher hurdles and expectations of risk awareness.
Property Co-Ownership Summary
| Structure | Suitable For | Key Features | Flexibility |
|---|---|---|---|
| Joint Tenancy | Couples | Equal shares, right of survivorship | Low |
| Tenancy in Common | Friends, Siblings | Unequal shares, independent transfer/sale | Medium |
|
Collaborative Housing |
All co-owners | Custom rules for use, exit, disputes | Essential |
| SPVs | Commercial Investment | Holds property, limits liability | High |
| Commercial Syndicate | Investors | Pool funds, professional management, unit trust | Highest |
Legal & Tax Considerations
For varied ownership structures, a legally binding agreement is essential. It should cover ownership shares, financial contributions, dispute resolution, exit strategies, and what happens on exit. An upfront agreement will create clearer expectations and protect all parties.
Always seek financial advice too before entering any co-ownership or syndicate arrangement, as the tax implications can be complex.
Property Grants & Concessions
Co-ownership can impact eligibility for government programs for stand duty concessions or grant when buying with non-eligible parties. For example, a first home buyer grant will not be available if one party already owns or has previously owned a property.
Financing the Property
All parties need to be aware that Credit Provider have specific criteria that have associated risks when considering finance as co-buyers.
- Ownership Structure & Documentation
Credit Providers will need ownership structure outlined and may insist on a co-ownership agreement that outlines rights, responsibilities, and exit strategies.
Outside of very large transaction or syndicated structures, the financial information of all co-owners will be reviewed by the lender. Each person's capital positions will be a relevant part of the application. For example, if some titleholders/borrowers have a weaker financial profile, this can impact the application as a whole.
A key point to understand is that liability is typically "joint and several". While there may be multiple parties, there is typically only one asset. Any defaults by one co-owner can impact all parties. So be mindful of who you get involved with and the potential impacts.
- Serviceability is key
For investment properties, it is common that a shortfall for servicing debt exists when comparing property rental income and loan repayments. In these cases, lenders will need to see supporting income from co-owners to make up any shortfall in rental income.
- Substantial Benefit & Representation of Titleholders
As a general rule, all titleholders need to be represented under mortgage arrangements, either as a borrower or guarantor. Further, under the Banking Code of Practice, banks must ensure each co-borrower receives a substantial benefit from the loan and will assess the risks of being a co-borrower or a guarantor for each person involved.
- Syndicates & SPVs
For commercial property, banks may require the use of an SPV (e.g. a company or trust) as the borrowing entity, with directors or unit holders providing guarantees.
In commercial syndicates, banks look at the syndicate structure, the experience of the operators, and the collective creditworthiness of the SPV, which requires a lot of supporting information. For substantial loans, be aware that banks may share risk among other lenders, with an agent bank managing the overall position. This approach may deliver varying or extra covenants in the form of loan conditions on new borrowers or lenders joining the syndicate.
Is Co-Ownership for you?
Co-ownership is a practical way to buy property with friends, siblings, or other non-traditional partners, which requires clear legal agreements and planning.
The correct structure is essential.
- Joint Tenancy and Tenancy in Common are vehicles to protect the interests of co-buyers, while Collaborative Housing is a good option for community development projects.
- Syndicates and SPVs allow individuals to access high-value commercial assets with professional management and shared risk.
Contact MCP
1300 510 816 or your Finance Partner
enquiry@mcpfinancial.com.au
Follow us on LinkedIn
The team at MCP Financial Services has specialised expertise in structuring complex debt arrangements. We can assist with review and restructuring, refinancing and renegotiating.