Did you know that there is such a thing as fractional property ownership in Malaysia? Property fractionalization or fractional property ownership is not actually a very new idea but due to regulatory issues, it has not quite taken off in Malaysia. In its earliest form, it was first conceptualized in the UK as what is known as ‘timeshares’.
Timeshares is the concept of having multiple owners of the same property only having access to it at various times during the year. This was later further developed to divide a single resort room into 1/50th ownership. It took almost a decade for timeshares in Europe to evolve into a smoothly run, successful, business venture.
Since then, it has morphed into what has become more well known today as fractional property ownership.
This brings us to here and now, in Malaysia, in 2019.
BMVProp is a revolutionary company that is bringing fractional property ownership to Malaysia in 2019. They are perhaps one of the first few platforms in the Asia Pacific region that are offering fractional ownership to property investors.
Why BMVProp though, and why now?
The thing about fractional ownership for property in Malaysia, is that it has always met with regulatory roadblocks. The Securities Commission (SC) in Malaysia is very rigid when it comes to developing new regulations for new technology as with many other securities regulatory bodies across the Asia Pacific.
What makes what BMVProp’s initiative interesting is the fact that the company is actually a Joint Venture of sorts between Speedprop, a Malaysian property technology company and Lantern RE, an Australian asset management company that has been granted a license to create fractionalized investment products by the Australian Securities and Investment Commission (ASIC).
This license is what makes BMVProp so attractive.
Australia is among the first countries in the Asia Pacific region to have mature legislature on property fractionalization already developed. The licensing from a matured regulatory framework gives huge credibility to the company, as most countries in the region are barely only beginning to develop similar legislation.
Australia also has other fractional property sites, but these currently only offer their services to Australian citizens to purchase fractions of Australian properties.
BMVProp plans to stand out from the crowd by developing their platform to give access to international investors to properties all across the Asia Pacific, starting with Malaysia.
Malaysia is especially attractive at the moment following our current property overhang situation which is only getting worse each day following what has been called ‘stringent loan approval’ and ‘mismatched property prices’.
The Malaysian government has been seeking solutions to this problem and perhaps this may just be one of the ways it can get more of these leftover units to be sold.
We were invited to sit in for a presentation that was conducted by one of BMVProp’s Directors – Alex Knight. Alex is also the Managing Director of Lantern RE and has over 8 years of experience in accounting, corporate advisory and fund management, predominantly in property, credit and venture capital. Alex has also been involved in international capital raising, mergers and acquisitions, as well as being a strategic advisor to early stage and growth companies.
Alex explained to us in detail exactly how the entire process works and we have summarized his presentation and responses below:
How does BMVProp work?
Basically, BMVProp identifies ‘below market value’ properties that fit certain criteria to qualify as ‘high investment return’ property investments and buys them. These properties are then broken down into theoretical fractions which are then uploaded to the BMVprop platform where users will be able to view fraction prices and decide if they’d like to buy them.
The fractions will fluctuate in value based on regular independent valuation of the property meaning that the price of the fractions will go up and down just like stocks on Bursa do depending on the demand and fair market value of the property.
Owners of property fractions will be able to earn through distributed rental income (similar to dividends that you get from stocks) and also appreciation of the fractions. These fractions will also be tradable on the platform with other users making your property investment extremely liquid.
How does BMVProp select properties for fractionalization?
BMVProp’s has an investment team with many years of real estate investment experience. BMVProp leverages on both qualitative and quantitative analytics to generate optimum results. Our artificial intelligence (AI) platform dramatically quickens and simplifies tiresome processes and experiences involved in identifying and selecting investment grade properties.
BMVProp’s proprietary AI algorithm analyzes hundreds of datasets such as housing prices, short-term rentals, historical transactions and neighborhood features to find the highest yielding properties in major Asian cities. The algorithm is the core Intellectual Property of Speedprop, developed by a team of in-house researchers headed by an Oxford-trained Data Scientist.
Does BMVProp buy these properties up front prior to fractionalization?
BMVProp will actually make use of various types of financial instruments for ownership and does not necessarily purchase the property up front before fractionalization of the asset. The property in question will be evaluated on a case-by-case basis on which method is most suitable for acquisition.
Who will be able to invest in these property fractions?
Both Accredited Investors (extremely wealthy individuals) and retail investors (regular people like us) will be able to invest.
How is fractional ownership offered to investors?
Fractional Ownership can be offered in two models. Firstly, investors’ names are registered in the title deed, or secondly, the investors are promised with a specific return through a contractual agreement. The Interest Scheme Act 2016 governs the latter model.
What are investor returns like and when are investors paid out?
Returns on fractions are paid out at least quarterly and will initially be paid out in AUD but there are plans to shift to multi-currency payout in the future. These returns will fluctuate depending on each individual property’s performance based on its tenancy which will vary from year to year for long-term tenancies and month to month for short term tenancies.
What kind of fees will BMVProp charge investors?
Fees are charged at a 6% rental management fee on returns, plus a variable asset management fee. There will also be a small transaction fee on the trading of fractions, much like any equity trading platform or broker will charge.
What types of properties are being targeted for property fractionalization?
Initially this will be only for completed residential developments. There are plans however, to include off-plan and commercial properties further down the line. BMVProp is currently evaluating the suitability of RM600 million worth of residential developments for their initial phase.
Where are these properties located?
The first phase of properties to be fractionalized will be located in several localities in Malaysia – Kuala Lumpur, Johor Bahru, Penang and Langkawi.