Crowdfunding – the community-driven online fundraising method that has enabled projects such as wine-making ventures, independent film productions and even the latest Pebble smartwatch – has now moved into the sphere of property finance.
Already popular in the US and the UK, the ability to invest in real estate via crowdfunding platforms has recently arrived in Australia.
Rather than approaching a select group of private investors, a crowdfunding project is opened up to a wider pool (often the general public via a website) who are offered the opportunity to financially contribute to its goals, in return for rewards or equity. With respect to the real estate industry, by pledging money through a crowdfunding intermediary, investors are collectively buying a property or investing in a real estate development project by loaning money to the developer or taking equity in the project.
Australia’s first real estate crowdfunding platforms
Launched here in March, CrowdfundUP is a site that allows users to invest funds in a range of commercial properties and projects, selected from a portfolio online in what is touted as a “streamlined, easy access format” that they can sign up to almost instantly.
VentureCrowd Property is another crowdfunding platform that has recently launched in Australia, offering wholesale investors a chance to invest in residential properties. Over time the group plans to expand into commercial, industrial and retail properties.
Real Estate group Mirvac is the first major diversified property group in Australia to take part in such an initiative. It is offering two Sydney apartments for sale through the VentureCrowd Property platform as a tentative start, “enabling us to better understand the ins and outs of crowdfunding,” said its Residential Development CEO John Carfi speaking to the AustralianFinancial Review.
BrickX is another real estate crowdfunding platform to have opened up in Australia this year.
Joining the property pool
The appeal of crowdfunding to small investors is that if they have limited funds, it allows a quicker route to property ownership. With the investment pool opened up to greater numbers, an individual’s input can be as little as $66. It is also considered to be a quicker and more efficient way to tap into investment opportunities.
Real estate crowdfunding is the fastest growing category of the global crowdfunding industry, predicted to reach US$2.57 billion by the end of this year and hit US$250 billion by 2020.
It is a natural evolution of the traditional real estate business, says Steven Maarbani, Partner in PwC Australia’s venture capital and private equity team. However it is accelerated by a key difference: user experience, driven by the digital technology behind it.
In a publication released today, Maarbani identifies five key areas in which he believes digital technology aids the user experience and drives the market:
Information – Digital analytics and investment tools provide targeted and tailored information that can help investors make more informed decisions more quickly. Over time, digital investor education tools could also be employed to help to educate the market and lead to further investment.
Scale – Online, project operators can connect with investors anywhere in the world quickly and inexpensively. This means wider access to investors.
Convenience – By enabling access through mobile devices and focusing on a creative user interface, crowdsourcing platforms can make the process more convenient. The platform may also offer coordination of financial, management and legal processes.
Trust – Integrated social media tools mean users can connect with their peer groups. This creates a forum for dialogue about an investment or a real estate crowdfunding platform operator – meaning a greater sense of transparency and access to information.
Entertainment – By enabling strategic platform design and embedding elements of gamification, crowdfunding platforms have the potential to overlap the experience of real estate investment with entertainment. This would transition the user experience from that of pure investment to part entertainment.
Australia’s crowdfunding landscape for real estate is still nascent, Maarbani argues, but the industry should expect to see serious disruption in the near future.
Property developers, investors and financiers should be aware of this oncoming disruption and prepare for the changing dynamics now, he adds.