Property fund manager DomaCom has entered the home equity release market with a product based on a shared equity structure, as an alternative to the standard loan structure of a reverse mortgage.
Under the terms of Senior Equity Release, a DomaCom fund, which is a registered managed investment scheme, acquires an interest in the property in return for a cash payment that can be in the form of a lump sum or a series of monthly payments.
A mortgage is taken out by the fund and placed on the property title to protect investors’ interests.
Once an equity release deed is signed, the fund seeks to raise money from investors, who purchase units in a sub-fund.
The scheme is open to people aged 60 and over. The property must be a principal place of residence.
Vendors retain the right to live in the property, or determine who does, until the equity release deed is terminated.
They must pay ongoing fees and costs, which is funded by selling additional interests in the property. The service fee is 4.4 per cent of the value of the property acquired.
Of that amount, 3 per cent goes to investors as a notional rent. Investors will also receive their share of capital gains when the property is sold.
Once the fund is a part-owner of the property, it will pay its share of repair and maintenance costs in proportion to its interests.
Vendors are charged an annual service fee of 4.4 per cent of the value of the property acquired. The service fee is paid by the vendor selling additional interests in the property over time. It is paid five-yearly in advance, starting at settlement.
Out of that service fee, investors receive a notional rent of 3 per cent.
Vendors can buy back the fund’s interest at the higher of market value or the indexed value of the acquisition price.
Vendors may be able to get additional cash payments by selling additional interests in the property.
DomaCom has the right to approve the sale of the property.
DomaCom chief executive Arthur Naoumidis says Senior Equity Release will be sold by accredited financial planners.
He says the target investor market is self-managed super fund trustees. “SMSFs have a 15 to 20 year time horizon. If they get into one of these deals they will get a 3 per cent annual yield plus long-term capital growth.”