Commonwealth Bank of Australia has reportedly joined a $31 million round in property tech firm OwnHome, which claims it can get thousands of first-time home buyers out of regular renting by leveraging a model, somewhat similar to Buy Now, Pay Later, which eliminates the requirement for costly deposit and stamp duty charges.
OwnHome’s investment round has been led by VC company Square Peg, with CBA investing through its x15ventures division, which aims to support startups it thinks can expand to add new products/services for its clients. Other investors reportedly include Global Founders Capital, Entree Capital, AfterWork, and Possible Ventures came back from a previous round in 2021 to contribute additional funding.
As mentioned in the announcement, OwnHome leverages a model referred to in the real estate sector as rent-to-own, which is typically used in the US. OwnHome acquires the house on behalf of its client, taking care of deposits and stamp duty, with the client paying an initial 1.5% fee and moving in as if they actually own the property.
The client also provides an extra 1% to start a “purchase offset,” and provides regular monthly installments to OwnHome, which reportedly includes building equity of 2.5% in their home every year. They are then able to choose to acquire the homes for a pre-determined price at some point between 3-7 years.
CBA doesn’t plan to add this offering to its fast-growing app for now. However, the CBA is hoping that this type of ownership model will become more widely-adopted.
With the charges/fees taken into considerations, it could mean that a potential property buyer might need around $25,000 upfront to move into a $1 million home.
As first reported by the Financial Review, OwnHome Co-founder James Bowe stated that this represented around 10% of the upfront outlay for an equivalent property with a 20% deposit and stamp duty (along with conveyancing charges).
Toby Norton-Smith, MD at X15ventures at CBA noted that the OwnHome model enables considerable potential for Australian homebuyers.
Bowe added:
“A 20% deposit and stamp duty on the median priced house in Sydney now requires about $350,000 upfront outlay. Unfortunately, for many Australians they fall in the twilight zone of government support or low deposits being accessible. Firstly, 5% loans are incredibly rare, while government schemes like the single parent home loan deposit scheme have price cutoffs that preclude virtually all properties within a reasonable commute in major cities across the country.”
Co-founder Tim Harley claims that the firm received over 3500 applications (1500 in December) within 6 months.
Harley commented:
“Our experience is that the largest barrier to housing affordability is not serviceability, it’s the deposit hurdle. We all know the Bank of Mum and Dad has become the deciding factor in homeownership. Two in every three successful first homebuyers receive direct financial support … Our model allows you to build your deposit over time, while living in your property today.”