A shared equity arrangement is where two or more parties agree to co-purchase an asset, and share in any capital appreciation of that asset over time. The parties may agree on a 70/30 ownership or any other shared arrangement.
The parties need to consider whether recurring expenses such as stamp duty rates and taxes and maintenance costs will also be shared, or whether some other arrangements are to be made.
A shared equity scheme can be a convenient way for some buyers to access home ownership if they cannot afford to borrow sufficient funds for a home of their own. Shared equity arrangements allow one party to purchase part-ownership in a property and enable them to capitalise on any capital gains that may occur in a rising market. Of course any capital losses in a falling market will also be shared if the asset is sold.
If you are considering entering this type of arrangement, all terms and conditions should be documented, including an agreement on when and whether the home can be sold and any capital gains and losses realised. The conditions should also provide for a “buy-out” arrangement where the circumstances when party can purchase the other party’s shares are clearly outlined.
At an institutional level shared equity arrangements are a relatively new concept in Australia. There is a State government run scheme in Western Australia which has been popular. Some large private developers have also examined the prospect of introducing an arrangement.
Shared equity schemes are an innovative mechanism to allow access to home ownership at a time of lower housing affordability.