Swaps market offering opportunity for investors

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A new website is offering an alternative avenue for investors to broker deals, where the value of the property isn't the primary concern.

Tuesday, March 2nd 2010, 4:32PM 1 Comment

by Maddy Milicich

Homes2Swap.co.nz offers a platform where home owners and investors alike can mutually agree to swap properties and settle on the value difference in cash.

Website founder Seamus O'Sullivan believes there is huge potential for those who are in the business of downgrading, as well as upgrading properties.

"Swapping will only work where people are willing to downsize, not just upsize," he says, which is where investors can come in.

Traders for example can swap a new or newly renovated home for one that is in need of doing up or has subdividible potential.

Having a deal based on value differences rather than on the total value of a property, plus the fact that deals need to be settled on the same day, creates an equal market for people to operate in.

"Swapping creates an even playing field. It doesn't matter what the property is worth, it only matters what the value gap is," says O'Sullivan.

He says the swaps market is also a good option for people who can no longer afford their mortgage and are facing mortgagee sale, to downgrade to something they can afford.

"Someone with a mortgage of $300,000 but with a property worth $400,000, can effectively end up with $100,000 cash in their pocket and retain the full value of the property rather than selling at a loss at mortgagee sale."

Despite the swaps market widely used overseas, Waikato Property Investors' Association president Nancy Caiger says there are issues with New Zealand being so small.

"It can become tricky to get the perfect swap because of limited options," she says.

"Greater density places like England, it is easy to swap. But here, you might get one property in Invercargill, 10 in Auckland and five in the Bay of Plenty, for example, but the supply demand balance in each area is different."

She says agreeing on valuations could also be an issue, but O'Sullivan says they encourage people to get independent valuations.

Asked if the model could be sustainable in New Zealand, O'Sullivan said that will only be discovered in hind-sight, but "the answer in this market is probably yes. People have limited choice".

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