Commercial property sales have plummeted by almost half in the first quarter of 2019 as aftershocks from the Royal Commission into the banking sector continue, making it difficult to find a buyer who is able to purchase the whole property on their own.
One way to boost sales can be through shared or co-ownership. Co-ownership as a tenant in common can be a beneficial and affordable way for self-managed super funds (SMSFs) to acquire real estate. Superannuation law allows super fund members to co-invest with their super fund, while the new Tenant in Common Exchange (ticX) provides a safe, uncomplicated trading platform for co-owners. Until the development of the ticX there was no trading platform for the sale and acquisition of tenant in common interests in real estate.
The law allows a SMSF member to own a property with their SMSF as “tenants in common”. However, when jointly investing in property with your SMSF as a co-owner the property must not be used as security for any borrowings the member may require. The member is allowed to use borrowings to acquire their share of the property as long as the security on the loan is on another property that they own.
A tenancy in common is created when a property (or part of the property) is sold and is then owned by two or more persons in equal or unequal shares. Each co-owner’s share can be willed (bequeathed), sold or mortgaged separately. Each party is responsible for paying the property’s expenses proportionate to their ownership percentage.
Once acquired, the property must not be subject to a lease arrangement between the SMSF and the member if the property is not a business premises. This means, if a commercial property is bought by the member and their SMSF, it can be leased to the member to conduct business from it. But if the member and the SMSF buy a residential property, it cannot be leased to the member for private use.
What the Taxation Office says
The Tax Office has stated in its publication SMSFR 2009/1, members must ensure that if they are buying an asset with their SMSF, they do so as tenants in common. This is because the super law requires ownership of assets by an SMSF to be clearly identified. In addition, the law does not allow members to use any of their SMSF assets as security for loans they may need to enter into privately.
ticX – a timely exit pathway
Should a tenant in common co-owner wish to sell their share it can be listed for sale on the ticX trading platform. The ticX trading platform is where buyers, investors and sellers can freely transact any shared ownership registered on title in any real estate anywhere.
Owners and buyers can login to the ticX online platform to view the listed property and other relevant information. Potential buyers are able to make a bid to purchase a co-owner’s share and/or monitor bids generally.
Opens the door allowing more people to get on the property ladder
We believe the ticX trading platform provides opportunities for many more people to become property owners and the public benefit derived from this outcome will be significant. We believe that the ticX trading platform for shared ownership of real estate will open the door to more affordable, less risky real estate investment as an alternative to purchasing a whole home or property outright.
The benefits of the ticX trading platform are far reaching. Most importantly the ticX trading platform provides a new and exciting approach to addressing property affordability and a new pathway for the community at large to invest in real estate ownership. The ticX trading platform at long last provides valuable liquidity for tenant in common ownership and considerably more risk adverse investment opportunities for fractional owners than ever before.
The ticX trading platform currently operates in Australia & New Zealand.