DomaCom Limited (ASX:DCL) is making progress with four key fractional investment products - Rent to Own, Essential Worker, Equity Mortgage and Senior Equity Release - which are expected to drive future revenue growth.
The company, which has adopted a recurring funds under management fee model, said these “COVID-19 friendly” products were in development and would be its key business drivers in 2020 and 2021.
DomaCom, which operates a fractional investment platform that provides real solutions for self-managed super funds (SMSF), retirees and new home buyers, had $71.79 million in funds under management as at June 30, 2020, an 11.2% rise over the past three months.
In July 2020, DomaCom purchased its first rent-to-own property which was syndicated during the COVID-19 pandemic. Its next properties – Brunswick in Melbourne and Westmead in Sydney – are being syndicated.
The company’s target market is self-managed super funds.
DomaCom, which owns and operates a fractional investment platform, said the landscape in Australia, especially in view of COVID-19, was supportive of its activities. These include:
➢Major bank withdrawing from SMSF lending;
➢Lending environment making it difficult for investors to get debt;
➢Housing affordability currently at the forefront in Australia;
➢Property investors seek lower vacancy risk;
➢Self-funded retirees seeking solutions for funding retirement lifestyles; and
➢Islamic community needs Shariah-compliant methods to buy property with leverage.
"Starting to gain traction"
DomaCom CEO Arthur Naoumidis said: “While the current environment is a challenging one, we are pleased that several of our key products are starting to gain traction in this environment.
"In particular, the ability to complete our first RTO syndication in the middle of the pandemic is a promising result.
"Encouragingly, we have seen significant investor interest in further RTO syndications.”
COVID-19 has impacted businesses, with an increased vacancy risk, given the effective 12% unemployment rate. The current property vacancy is around 4%.
It is also harder to secure loans due to the high unemployment and nervous lenders tightening their lending criteria. Property prices in Melbourne have fallen by 2.3% and both investors and home buyers have turned nervous.
DomaCom also noted the low-interest rates environment, highlighting the term deposit rates, which were already at historic lows before COVID-19 and slashed dividends, leaving self-funded retirees in crisis.
Its rent-to-own operations offer attractive tenant and investor propositions.
Tenants are ‘gifted’ 1% of equity per year for five years, and the co-ownership model produces lower risk tenants rather than just permanent renters.
For investors, there is a 10-15% uplift due to developers offering 10% for bulk property sales, and there is a low risk of vacancy as the tenant is also a shareholder.
DomaCom is partnering with national Community Housing Provider (CHP), with its first $25 million pilot – Essential Worker’ targeted for launch in the fourth quarter of 2020.
This project offers a 25% rental discount to teachers, nurses, firepersons, with a 5% tenant equity gifting over five years.
The pilot can be extended to all Australian CHPs to solve their equity problem.
Senior equity release
The DomaCom Fund enables retirees to participate in equity release, effectively ‘selling’ a fraction of their home to investors and receiving the proceeds either as a lump sum or a monthly payment.
It said self-funded retirees are in crisis due to the low-interest-rate environment and its DomaCom Senior Equity Release will help to top up their SMSF.
Islamic leverage product market
The company is in talks with a business-to-consumer partner targeting the Islamic market.
Its DomaCom Equity Mortgage is an Islamic leverage product which allows Muslim consumers to buy homes using Shariah-compliant leverage.
This product is not sensitive to the property investment outlook.
DomaCom expects the equity mortgage using Islamic compliant property finance options to be operational in 2021.
This will allow the 700,000 Muslim Australians to buy property using the country’s first Islamic compliant property finance option.
Global Islamic compliance verification is to be obtained and its unique legal structures are in development.
This finance option can be used by non-Islamic markets as well.
At the end of the June quarter, the operational impact on the company due to COVID-19 has been minimal as its operations are cloud-based, enabling the company to operate remotely.
Its DomaCom Fund is in good shape as most of the properties are not leveraged, the sub-funds generally have internal rent reserves to cover three to four months of rent in the event of vacancies.
Also, well-defined processes are in place to raise top-up capital for sub-funds if required.