What is joint property ownership and how does it work

Joint property ownership is where two (or more) people share the ownership of a property.

In such circumstances, the names of all parties feature on the title, and they own the whole property together, as opposed to individual shares in it.

Additionally, a ‘right of survivorship’ may be assigned to the title deed, which means if one owner dies, their share is automatically passed to the surviving other person(s).

Traditionally, the two parties are spouses. However, a recent study by ING highlighted a rise in joint ownership partnerships among 'property pals' as a way to enter or invest in the housing market.[1]

Is joint property ownership becoming more popular in Sydney?

According to the Sydney Morning Herald, the median house price in Sydney as of January 2024 was $1.6 million.[2]

For many individuals, this means it is extremely difficult to buy a property on their own, especially considering they would need to save $320,000 just to satisfy most lender's requests for a 20% deposit.

When you also consider that many people are nervous about the potential short-term and long-term rise in interest rates (which sit at 4.35% at the time of writing), it’s not surprising that joint property ownership is becoming an increasingly popular option in Sydney.[3]

Indeed, for some people, pooling their financial resources with partners, family members, or friends might be the only way they will ever be able to buy a property in the city, especially if they are first-time buyers or over the age of 50.

The 2022 Women and Property report from CoreLogic found that 43.5% of properties in Australia are jointly owned by men and women; in most cases, this means spouses.[4]

This is compared to approximately 24% of houses owned solely by women and 28.5% by men, which suggests a large portion of the population participates in joint property ownership.[5]

How joint property ownership works

Anyone who wants to buy a co-owned property in Sydney with a spouse, family member, friend, or business partner must understand that they are entering into a legal relationship when doing so.

Additionally, they must understand that this relationship is bound by the terms and conditions of a co-ownership agreement, which all parties – including themselves – must sign.

As mentioned, joint property ownership revolves around the concept of undivided interest. This means that all parties collectively own the whole property as a single entity rather than having separate, defined shares within it.

It is also based on the four principles of joint tenancy (title, time, interest and possession) and stipulates that all owners must acquire their interest in the property simultaneously, under the same document, and with identical interests.

Joint property ownership can be complicated. So, before entering into any such commitment, it is essential to seek proper legal advice from an experienced conveyancing lawyer with experience in the Sydney housing market.

Joint tenancy vs tenancy in common

When entering into joint property ownership, you'll need to decide whether to put in place a joint tenancy or a tenants in common arrangement.

Both agreements give equal ownership rights and an equal share of the entire property to all parties. However, the main difference between them is that different rules apply should one of the tenants pass away.

Joint tenancies come with a ‘right of survivorship’, which means that if one of the parties dies, their ownership share of the property is automatically transferred to the other(s) involved in the partnership.

With tenancy in common, this rule does not apply.

Instead, each party can choose to bequeath their share of the property to another person, who assumes the right to sell, lease or remortgage their interest in it without requiring the approval of the others.

(The ATO provides clear examples of how the two differ in this article.)

What are the benefits of joint property ownership?

Joint property ownership can provide several benefits for those who want to enter into such a partnership.

For many people, the main one is that purchasing a home or investment property becomes much more affordable as you can pool your money together with others. This makes the dream of living in your own home or buying investment properties a lot more achievable.

Additionally, you can get into the property market quicker because you don't need to save up for a full 20% deposit on your own. By combining your income and savings with others, you can significantly increase your borrowing power and potential ROI. You will also be able to choose from a broader range of property options.

The costs associated with buying a property (such as building inspection reports, conveyancing fees, and stamp duty) will also be reduced for you. In addition, maintenance and insurance costs will be shared, and you won't have to fork out as much in ongoing expenses.

Additionally, there may be tax benefits associated with buying a property in joint ownership. So, talk to your accountant to understand what they are before committing to a purchase.

How to create a co-ownership agreement

All joint property ownership agreements are either created as a joint tenancy or tenancy in common.

To determine which is best for you, it is a good idea to seek the professional advice of a conveyancing lawyer who will outline the relative merits of both to your situation. Once you have decided which type of agreement you want, they will draw up the document while ensuring all mutual obligations are clearly outlined.

You should have them explain the full terms and conditions of the agreement to you carefully, and if you are happy with them, you can proceed to sign it.

What are the rights and responsibilities of co-owners?

In joint real estate co-ownership agreements, all responsibilities are divided equally between all parties. Therefore, it is essential to know your property ownership rights and obligations as per NSW property laws.

This should be outlined to you by the conveyancing lawyer, but basically, it covers all maintenance, expenses, taxes, mortgage responsibilities, and the finances associated with the property.

To reduce the potential for disputes or misunderstandings, it is a good idea to draw up an agreement on who will handle what matters in relation to the residence.

If you have bought it as a Sydney real estate investment property and therefore won't be living in it, consider enlisting the services of a professional property manager.

What are the tax implications of joint property ownership?

While co-owning a property can prove to be both a good way to get a foothold in the housing market and a lucrative investment toward safeguarding your future, it does come with significant tax implications.

These will differ depending on whether you are living in the building as your primary place of residence or if you are renting it out to tenants. It will also be affected by whether you have agreed to a joint tenancy or tenancy arrangement.

To fully understand the tax implications of property co-ownership, you should seek professional advice from your accountant or the ATO.

However, it is worth noting that joint property ownership could significantly impact you in relation to capital gains tax (CGT), land tax, and income tax.

That said, you may be able to benefit from negative gearing, shared expenses, depreciation, and a capital gains tax discount under certain circumstances.

Financial considerations

Aside from any potential tax implications, you should also weigh up several financial considerations associated with joint ownership of a property.

Clarify with the lender if jointly owning a property reduces your equity. This may or may not be the case, but if it is, you might struggle to receive pre-approval for any other future home loans you might apply for.

“It depends on how the joint loan is set up,” said Fane Levy, Senior Credit Adviser for Shore Financial. “Usually applicants would purchase 50:50 and take out a single loan as joint applicants. What this usually means for future borrowing is that you are ultimately responsible for 100% of the debt rather than 50% of it, which could reduce your borrowing capacity.

“However some lenders offer a policy called a ‘common debt reducer’ which essentially allows the bank to only expense 50% of the existing debt (rather than 100%) provided they can prove that each applicant is able to service their portion of the debt. There are only a handful of lenders that offer this.”

Some of the other financial considerations you need to take into account are how much you can outlay for ongoing maintenance and the amount you will have to pay in taxes. Additionally, you should think about how you will cover these payments and what your liability is as a part owner of a property.

It’s important to know because co-owners are liable for each other's debts, which means your credit rating could be negatively impacted if things go south.

Summing up

Joint property ownership is becoming an increasingly attractive option for Sydneysiders who want to take their first steps on the property ladder or grow their investment portfolio.

Whether it's the right move for you will depend on your circumstances. There are definitive pros and cons associated with doing so.

If you do decide to take the plunge and decide to buy a home with someone else, you will need a trusted real estate team to help you bring your dream to life. We are committed to helping you, so contact us today.

FAQs

What loans are available for property co-ownerships?

“Regarding the initial setup of the loan, there are some lenders that have loan products specifically for joint borrowers (known as property share) whereby each applicant will take out a separate loan for their percentage (e.g. 50%), meaning there will be two separate loans with the same lender against that particular property,” said Fane Levy, Senior Credit Adviser for Shore Financial.

“However each applicant is only responsible for their portion. This means that future borrowing will not be impacted, as only 50% of the loan will be factored into borrowing capacity rather than 100%.”

What are some common clauses included in joint property ownership agreements?

Every co-ownership contract agreement has some clauses inserted into it. Some of the main ones to look out for are ownership shares, which outline the percentage of the property each party owns, the financial responsibilities of each party, and the procedures for selling or transferring one party's share of ownership to another.

How does joint ownership of property work when one person wants to sell?

The easiest solution to this scenario is to create a contingency plan for this before co-owning property (with a spouse, family member, or friends).

Seek legal advice from an experienced lawyer who understands property law. They can walk you through different scenarios (for example, one joint tenant buying the other out after a market valuation of the property). Create a legal ownership agreement that maps out a clear plan of action (including rights and responsibilities) if this were to happen. If one person then wants to sell the property, you’ll have a legally agreed plan in place that you can follow.

If you don’t have an agreement in place, seeking legal advice is still a good first step. Try to resolve any disputes. If you can’t reach a mutually agreed resolution, then one joint tenant might need to take the other to court.