The business column - Patrick Hosking warns the online landlords
History has been made. Now we can all be landlords, with a new web-based business that makes buy-to-
A tiny terraced house in Leeds made a piece of financial history the other day. With No 5, Back Clarence Road, Horsforth, the purest form of modern-day screen-based capitalism tapped into the British fetish for ownership of bricks and mortar.
For petty cash, anyone can log on to the internet and buy a share in No 5. At the last count the shares were trading at £1 each, which buys you 1/104,000th of a rather charming stone-built home with one bedroom and a tenant already in situ.
For the first time a single residential property has been securitised and shares freely traded. No 5 is owned by 65 shareholders, who each invested £1,600 on average. The smallest shareholder (an investment banker from J P Morgan, I'm told) bought one share costing a pound. For the first time, according to Stephen Kenny, founder of Opromark, the web-based business that made it happen, buy-to-let is available not just to people with £100,000 to spare. We can all be landlords now. Anyone can take a punt on a property for less than they'd wager on the 3.30 at Redcar.
Opromark finds suitable properties, packages them into plcs and offers shares in them. It also organises letting agents and management firms to do the nitty-gritty of finding tenants and organising repairs. It then conducts a secondary market in the shares, matching buyers with sellers. In theory, dividends are paid out of rents, less fees.
It is early days. At present there are just 18 properties available on the Opromark website. Kenny conjures up the prospect of thousands of buy-to-let investors painlessly building up nicely diversified portfolios of property shares and trading them at the click of a mouse.
The health warnings, needless to say, are myriad. Opromark is unregulated. Investors are being asked to buy a share of a property without even setting foot in it, a recipe for disappointment ahead. There is no clear procedure in the event of a property needing major capital investment such as a new roof. The extent of shareholder control to sack managers is unclear. There may not be much rental income left after the middlemen have all taken their cut, though Kenny expects between 50 and 75 per cent of gross rents to be paid out in dividends. And if Opromark were to go bust (a very real prospect for any start-up business, let alone one pioneering such a novel idea), there's no one to make a market in the shares. The scope for disputes between shareholders would be immense.
But one has to admire the ingenuity of Kenny, who was one of the founders of Betfair, an online exchange that does away with the need for bookies, matching punters on each side of a bet.
Another point occurs to me. If Opromark did succeed, and shares in its properties were freely traded, it would at a stroke solve the problem of measuring house-price movements. The existing indices - whether from Nationwide, Halifax or the Office of the Deputy Prime Minister - are hopelessly unreliable because they do not measure the price of the same properties again and again. How could they? The same homes don't change hands month after month to suit statisticians.
The prices of the Opromark home shares, by contrast, would exactly reflect the actual market value of the self-same homes, day after day, week after week. Problem solved.
Taxes are for little people, as the American heiress Leona Helmsley memorably put it before heading to jail. KPMG, one of the big four accounting firms, has just been punished for taking the aphorism too far. The US department of justice fined the firm $456m (£250m) for helping the super-rich dodge $2.5bn of tax. These firms devise schemes to help the wealthy minimise their tax bills. Much of this is legitimate. A fair chunk is pushing at the boundaries. Some is plain fraud.
KPMG was forced to admit that it helped wealthy clients create phoney tax losses of $11bn by selling them "fraudulent" tax-avoidance schemes. The 600 customers for this particular service each had taxable earnings of at least $20m. KPMG earned $115m from the scam. Mike Rake, global chairman of KPMG, has had the grace to say, "I'm extremely embarrassed by what some of our guys did."
While a handful of KPMG partners and staff are facing criminal charges, the department of justice crucially stopped short of prosecuting the entire firm. As the Sunday Telegraph points out, such a move could have threatened KPMG's very survival, just as Enron destroyed Arthur Andersen. One of the reasons was concern about the impact on the already concentrated audit market.
It might be exaggerating things to say the Big Four - PricewaterhouseCoopers, Ernst & Young and Deloitte are the other three - have immunity from major prosecution. But regulators are keenly aware that the loss of any one of them would be disastrous for competition in audit and other accounting services. Not a healthy state of affairs.
Patrick Hosking is investment editor of the Times