Lease-to-own provider Ownlea is now taking expressions of interest for its first Sydney project, due to begin construction mid-year.
The Australia-first home ownership model works much like a lease deal on cars or mobile plans where the leaseholder can hold the property and be paying it off over the life of the plan.
Founder of Ownlea, Sydney architect James Alexander-Hatziplis, told Savings.com.au he believes the model is better than the more common build-to-rent schemes.
“At the heart of Ownlea’s mission lies the drive to democratise property ownership by empowering occupants to build equity gradually by leasing with the ability to purchase, rather than renting with no end in sight,” he said.
The five-year lease deal is essentially purchasing an option to buy the property at any time during the period without having to come up with an upfront deposit.
Unlike lease-to-own schemes in the US market, there is no obligation for Australian leaseholders to buy at the end of the lease.
So how does it work?
The initial leasing contract will cost the average buyer around $12,500, Mr Alexander-Hatziplis said.
The contract attracts some state government stamp duty but not on the full amount of property’s value.
Mr Alexander-Hatziplis puts the initial stamp duty cost at “a few hundred dollars”.
The contract stipulates the rent over a five-year period with increases of less than 4% a year, as well as a fixed sum to cover utilities and strata costs.
The tenant pays regular rent but has the option to pay extra to build up to 4% of equity in the home per year, although there is no obligation to do so.
Any extra payments effectively lower the future buyout cost of the home and are designed to give the buyer 20% home equity by the end of the lease term.
This can help with home loan eligibility if owners take on a standard mortgage to purchase the property at the end of the five-year lease period.
The main instalment of stamp duty is triggered when the tenant takes up the option of purchasing the home from Ownlea.
If the tenant decides not to purchase, the property can be vacated or on-sold at any time during the lease with the leaseholder taking their extra equity as well as their share of any capital gains in that time.
Why lease-to-own instead of build-to-rent?
Mr Alexander-Hatziplis said a lease-to-own scheme is more straightforward and gives buyers an achievable medium-term stepping stone to owning their own home.
“The occupier has the peace of mind with set rent for five years and can build equity. Additionally, local communities benefit through neighbourhood stability and long-term investment,” he said.
Recent CoreLogic and ANZ research found the average Australian now needs more than 12 years to save for their first home in Sydney.
The Ownlea model aims to get buyers into homes sooner so they are not missing out on time in the market.
Aim to attract investors
The lease-to-own model is also designed to attract investors in future developments.
Mr Alexander-Hatziplis said with Ownlea controlling the stock, developers, wholesale, and superannuation fund investors can be assured of security and consistent returns.
“Our committed investors want to work in this space, helping people get into homes,” he said.
“They play a pivotal role and also have the benefit of receiving a set return over the term from a more stable lessor base.”
The scheme is working in partnership with community housing provider Pacific Community Housing which helps low and moderate income earners to find stable, long-term housing in the Greater Sydney area.
Ownlea is not at the stage of releasing where its first development site will be but already has more than 500 subscribers on its books.
Eventually, Ownlea plans to begin construction of around 3,500 homes in various locations in Greater Sydney and regional areas over the next 18 months.
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