Let’s take a look at a property which sold recently with Danielle Henry of Hocking Stuart: 8/27 Hill Street, Hawthorn. It was a beautifully renovated first floor unit in a nice quiet pocket of Hawthorn.
On the surface it had all the right investment grade attributes: it was a secure first floor unit, with a workable floor plan, onsite parking, outdoor space (albeit quite small) an abundance of natural light and very appealing neighbourhood views to top it off.
So why didn’t we buy it….?
It was on a Company Title.
What is a Company Title? Simply, it’s where you purchase shares in a company that provides you with the exclusive rights to a defined area. This is very common in Melbourne – especially in older style unit blocks. Company Title has been has been replaced by strata title, which affords the owner a simpler and clearer form of ownership.
Two considerations when looking at purchasing company title from an investment perspective are Growth and Security.
Banks see a higher degree of risk when lending against company title as new share ownership needs to be approved by a board of directors. This may restrict your market on re-sale and can drag out settlement. Additionally tenants require approval and, while in most cases this is merely a formality, there is greater opportunity for issues and complications.
As a result banks (in most cases) require a lower loan to value ratio (LVR). Essentially what this means is that people looking to purchase company title need a greater deposit. This can be seen as a positive for cashed up investors as they can generally purchase the property slightly cheaper than an equivalent strata title unit. But if one of your key goals is growth, your market will be limited on re-sale and there are more suitable investment properties in the market place.
One of the key elements to a good investment is its ability to hold its value during tough times. As most downturns in the property market coincide with a tightening in lending criteria, the ability for this form of investment to hold its value becomes more and more difficult. Selling this type of property in a downturn may be problematic – as such it’s very difficult to recommend this form of ownership as a viable investment vehicle.
In summary: there is a greater degree of risk when investing in Company Title property and if you are thinking of purchasing such a property, it is wise to conduct additional due diligence prior to purchase and to familiarise yourself with the various regulations and limitations.
Invest WellEmail This Article to a Friend