Ray G: Hello, I’m Ray Griffin and I’m one of the founding directors of AdviserVoice and welcome to our episode number five of the AdviserVoice Zurich FinTech Lab series. And this week, we’re talking with Arthur Naoumidis from the DomaCom Fund. And Arthur, it’s a pretty revolutionary investment that you’ve got with the DomaCom Fund, can you give us a bit of an idea of how it operates?

Arthur: Morning Ray, and thanks for having me here. Yeah, DomaCom is set out to solve a problem for advisers by fractionalizing property, in other words, breaking property down into bite-sized chunks, but to do so in the regulatory structure that you can use. And so, what we’ve chosen is a registered Managed Investment Scheme, which means that we’re authorized for retail, not just wholesale investors. To that, we’ve added a secondary market capability so we’ve got a, you know, for sale market permission. So we’ve created something very much like equities bid-offer market depth.

And the other little bit that we’ve added is, the secret sauce is the concept of book build or syndication, otherwise known in the public sense crowdfunding. So we’ve blended all those to create a solution for advisers to be able to offer for the first time, real property for your clients as part of your asset location. And, in fact, the belief is that property should form a part of the asset allocation of all your clients, in fact, should be an anchor class, because it has a very low volatility compared to the equities and other instruments.

Ray G: So, Arthur just looking at the book build process, I noticed that you can also…investors can identify property through their adviser through DomaCom, an existing property that’s available to invest in, but as you say, they can also become part of a book build if they identify a property which they would like to buy and be a part contributed to that. Is that, am I understanding that correctly?

Arthur: Yes, Ray. Basically, the properties can be selected either the financial adviser engages a property buyer’s advocate to just source, you know, appropriate properties for their clients, or alternatively, your clients themselves might say, “Oh, I like that property on the corner. And I believe that, you know, I can supply 30% of the capital, would it be of interest to others?” And you can create a book for that property.

And one of the unique features of DomaCom compared to a global crowdfunding site is that we’re the only one paid by the investor, which means that through our platform, you can buy any property developments, existing rezzy commercial industrial rule, whereas other crowdfunding sites are paid for by the developer, so they can only do off the plans or developments.

Ray G: So let’s just bring this across to the panel now, Arthur, and see how they might be able to build this into their portfolio. Virginia, if we look at property in portfolios over the history of financial planning in Australia, it’s largely been involved in either unlisted property trusts and I guess, more recently, there’s been a real focus on the listed sector. How could you see this perhaps feeding in the property component of portfolios in your practice?

Virginia: It’s interesting when I look back to how portfolios used to be constructed when advisers used to do it very independently. Property formed a large part of that and then they almost saw that as a defensive asset. It was almost classed that way. Whereas that sort of, it swam against the tide, I guess, some people have got a bit nervous about property funds and there’s been less of it, I have noticed in clients’ portfolios. I probably see what you’re doing is a little bit sophisticated maybe for the average older client, but I certainly see a need for that with perhaps a younger client group.

Ray G: So Ray, you work with the Gen X type clients very much a focus on that type of client. This is something which really perhaps could resonate with your type of, the clients that you work with?

Ray J: Almost certainly. I don’t think it’s any secret that affordability of property in Australia, over the last, say 10 years has become increasingly more difficult to get your foot in the door. So if there’s a facility to have a scaled entry into the property market then yeah, absolutely. That would be of interest.

Ray G: And Terese, you spent time working with advisers and you’d be hearing the stories that they’ve got the troubles and woes of portfolio construction from time to time. You’re hearing the sort of calls for this type of, I guess, a revolutionary type of product in the marketplace. Is that the sort of thing you’re hearing?

Terese: I’m hearing advisers wanting something different to the property funds and what’s available through other fund managers at the moment. Typical list of property trusts react very similarly to equities. They’re basically, you know, another stock and they’re not reacting as a traditional property would. So…

Ray G: They behave differently, don’t they?

Terese: Behave very differently. So yeah.

Ray G: And Dane, your funds management type activities, you know, where do you see this potentially sitting or the types of investors that you’re working with?

Dane: Well, I think on that point, Ray, that you just mentioned regarding volatility, I think that’s partly due to the illiquidity in residential property. I think if anything, what DomaCom is doing, it actually creates a more liquid market. And in times of heightened volatility, there is potential, from a fund manager perspective, potential to take advantage of that volatility, but also, we don’t do a huge amount of direct property investment partly because of the large investment size that you need to be able to get access to those sorts of opportunities. So it certainly opens up that market.

Ray G: So who’s got some questions for Arthur?

Dane: I’ve got two questions off the top of my head. With respect to the title, is the title held by the MIS or is it held by the underlying fractional owners?

Arthur: The title is held by the responsibility of the custodian which a perpetual corporate trustee because it is an asset of the MIS. So what we’ve done is created a very special type of property trust called a Segregated Property Trust that would create a sub-fund for every individual property and we’ve segregated the entitlements so there’s no risk of any contamination of performance or anything else from one sub-fund to the other because that’s the thing you get with DomaCom, you get what’s on the tin, you get precisely the return of this specific asset.

And that’s one of the needs of your investors, which is to, you know, it’s 10 people in the room, there’s 10 opinions. And our view is that if you don’t provide direct property solutions to your clients, someone will, and that someone’s usually the property’s spruiker, who invites your clients to the Hilton on a Thursday night and, you know, a few drinks later, they own something off-the-plan in Yeppoon.

Virginia: That is so funny.

Dane: Which is…

Ray J: I’ve got a question around… Sorry.

Dane: No, no, sorry. Go ahead.

Ray J: I was going to ask around the practicality. So if I’ve got five clients that all say have $100,000 interested in investing in property, I use a buyer’s agent, we identify an appropriate property with, you know, capital growth and we’re happy with the yields and all the rest of it. What’s the process from there, where does DomaCom step in?

Arthur: Basically, for any of your clients or yourself to participate, you first need to become members of the fund. So your clients would need to fill an application form and deposit the money, and we have an internal cash pool with ANZ, so it’s an ANZ bank account with an extra 0.58% above the overnight cash rate. So it’s actually more attractive than what you get in your normal rates.

And once it’s finished its two week cooling off period, you then simply start to book or syndicate buy at, you know, pick your first client, and you say, “Hi, I think we’re gonna buy this property for $500,000. And I’m gonna start it with $100,000 bid at $500.” And that starts the book, and then you do that for each client and then progressively you complete the book. But once you get to 30% of the target book price, DomaCom begins its own independent due diligence.

So 30% we engage a conveyancing lawyer to check that the contract title sale, 50% we do evaluations, inspections, building inspections as well. And 100%, we lock the book. Offer all investors a supplementary PDS which is a formal offer to subscribe for units on the sub-fund if we’re successful, everyone says yes, it’s now binding and we then appoint a buyer’s advocate and we buy the property.

Virginia: How does DomaCom sit within our compliance framework and on our approved product list?

Arthur: That’s what’s unique about us compared to all the other property sort of crowdfunding top platforms is that, you know, it took us four extra years than everyone else, but we’ve created the registered Managed Investment Scheme and we got approved beginning of last year, then it took us all year to get our research coverage. So SQM is giving us a viable rating and just refreshed that yesterday. So and that’s enabled us to get on approved product list.

Ray G: So thanks very much, Arthur. It’s been great to hear how the DomaCom Fund works. And of course, we’ll be taking more questions from the panel when we move to the next series once they’ve had a chance to explore the system a lot more and we look forward to those questions when they arise. So thanks very much, everyone.

Arthur: Thanks, Ray and I look forward to your questions.