Fintech startup BrickX has carried out an external revaluation for six of its 12 properties, with some interesting results.
Here’s a summary of how much their value has grown in just six months:
Looking at the changes in capital value across the six properties reveals some unique insights into the current state of the Australian property market.
There were some notable fluctuations in results, depending on the type of property and where it was situated.
For example, the recently renovated 2-bedroom house in Annandale in Sydney’s inner west, within a 5km radius of the CBD, recorded the highest price growth. At a new value of $1.45 million it’s around 10% higher than the median price of $1.352 million, but the 7.4% increase is roughly in line with the current annual growth rate of 14.5%.
The properties without any price growth were both units – Mosman has 2 bedrooms, while the Enmore property is a 1-bedroom.
The other three properties at Bondi Beach, Double Bay and Prahran are 2-bedroom units.
The spread of results from the external valuations could reflect a subtle shift in the local market.
The most recent CoreLogic data on house price growth to the end of June shows that while the major markets in Sydney and Melbourne are still growing, that growth has eased somewhat.
Australian house prices fell in May but bounced back in June, helped by seasonal factors.
Despite that, the rate of house price growth in the three months to June slowed from the previous quarter, reducing the annual rate of growth in both Sydney (to 12.9%, down from 18.9% in March) and Melbourne (13.7%, down from 15.9%).
Interestingly, unit prices in Sydney and Melbourne surged ahead in June by 4.5% and 2.3% respectively, compared to house price growth of 2.8% and 1.8%.
Over the full 12 months to the end June though, annual house price growth in Sydney exceeded that of units by 4.4%.
The difference in Melbourne was even more stark, with house price exceeding the return on units by 13.5%.
This table breaks it down:
The less rapid pace of growth in the June quarter may have also been partly due to macro-prudential regulations enforced from March 31, which restricted the amount of interest-only loans that banks could issue.
The data shows that while the Sydney and Melbourne markets in which BrickX operates are still growing, the huge gains of the previous two years are likely now a thing of the past.
Within a leading property market like Sydney, specific suburbs still have the capacity to outperform but prospective property investors can’t necessarily rely on gains in the broader market to guarantee returns.
As part of its offering, BrickX commissions external revaluations every six months by an independent valuation firm.
The valuation fees are included as part of general property expenses, and are deducted in the calculation of the monthly rental yield paid to each brick holder.
The table below shows how BrickX calculates the implied valuation of each brick on the BrickX platform:
BrickX calculates that the inherent value of each brick for the Annandale property has increased by $9.14, or 8.81%.
The changes factor in the effect of amortising the acquisition costs incurred on each property. They also account for the use of debt (as well as the equity provided by brick holders) in the purchase transaction.
Taking those two factors into account makes the projected value of each brick higher than the increase in the value of the property itself (8.81%, compared to 7.4%).
Conversely, that also means that the inherent value of those bricks actually fell for the two properties with no capital appreciation.
For a detailed breakdown of how amortisation works and the cost structure works, Business Insider ran the numbers on a BrickX property at Surry Hills. It describes BrickX’s use of both amortised costs and the debt/equity capital structure in calculating future returns.
Of course, the price of a brick is also determined by what people are prepared to pay for them on BrickX’s private marketplace.
This table shows BrickX’s updated calculations for the six properties revalued, compared to the minimum value they are currently being advertised for sale at.
As you can see, the brick price-point jumps around a bit.
Despite an updated valuation of the Double Bay property, which gives the bricks an implied value of $98.46, at the time of writing no brick holder would accept a price of less than $107 – an 8.67% markup.
The properties at Prahran and Mosman currently have bricks for sale beneath their implied value, which would suggest that at least one brick holder is keen to sell up.
Based on the results of the revaluations, there’s no doubt that some brick holders will be happier than others.
BrickX takes a five-year average of past growth to offer to use as a guide for each property. Historical annual price growth in Annandale is 13.66%, so the 6-month increase of 7.4% suggests that the BrickX house there is tracking ahead of schedule for now.
That compares favourably to the 1-bedroom unit in Enmore, where the website advertises historical price growth of 6.45%, although the external valuers ascribed no growth at all.
The numbers show that in order to gain from an exposure to Australian property, where and what you buy is important – and it pays to do your research.