Can crowdfunding improve housing affordability?
You usually need a fair chunk of cash to invest directly in property, whereas you can get into the stockmarket with as little as $500.
But crowdfunding is changing all that. Indeed, if you qualify as a sophisticated investor you can now invest as little as $100 in two new apartments in prime Sydney suburbs.
And as soon as legislation changes allow, VentureCrowd Property - a spin-off from VentureCrowd, a company that has attracted more than $2 million in funding since it launched in 2013 - plans to extend its offering to retail investors. It has teamed with Mirvac, one of Australia's leading property developers, in a trial offering, with more expected to follow.
Crowdfunding is growing fast as a way of raising money and as an investment channel for individuals. It enables people to take shares in specific ventures or assets via online platforms. In lowering the barriers to entry for investors, crowdfunders enable them to build long-term diversified exposure to real estate.
The concept is well established overseas, with Times Realty News listing 113 sites in the US and 29 in Europe. It also names six in Australia, but these are mostly not much more than start-ups. One, CrowdfundUP, says some of its opportunities will be open to retail investors. In early May, only one project was listed, an eight-unit complex being developed by Megara in Perth's Doubleview, which was fully funded.
But it's early days here and if Australia follows the overseas experience, where the demand has exploded, many more developers will seek investors through these sites.
Experts estimate that funds raised by online platforms have grown from $US1.5 billion in 2011 to about $US10 billion in 2014. In the US alone, real estate crowdfunding is forecast to raise $US2.57 billion this year and up to $US250 billion within five years, according to the Massolution 2015CF-RE Crowdfunding for Real Estate report.
"Thanks to real estate crowdfunding, investors now have unprecedented access to more international properties and markets than ever before and the need to 'think globally' is a necessity to succeed," says Scott Picken, CEO and founder of Wealth Migrate, a global real estate investment marketplace, on CrowdFundBeat.com. "The widespread impact crowdfunding had on a global scale in 2014 caught many by surprise and it's safe to say that the world is now becoming a global village as more countries get onboard."
VentureCrowd Property's trial project with Mirvac signals the development industry is willing to give this funding method a go in Australia. The two apartments are from projects in Bondi and Harold Park and will enable Mirvac to "better understand the ins and outs of crowdfunding", says John Carfi, Mirvac's CEO residential development.
VentureCrowd Property will enable sophisticated investors and, ultimately, retail investors, to diversify with as little as $100, says CEO Jeremy Colless.
Crowdfunding provides investors greater choice and control over their portfolios, compared with traditional real estate investment trusts, he says. And investors do not have the financing and management hassles associated with direct property ownership.
"We expect to see legislative changes in 2015 that will allow crowdfunding investment opportunities to be extended to retail investors," Colless says. This will give those who have been locked out of the market by rising property prices an opportunity to participate.
Investors in VentureCrowd Property projects will pay a 3% fee on the funds raised initially for the property and 2% on secondary trades once the offering has closed.
An outline of the top 10 real estate crowdfunding sites on crowdcrux.com shows a lot of diversity is available for investors. Realty Mogul, for example, says it enables investors with as little as $5000 to pool money to buy shares in pre-screened real estate investments. Fees depend on the type of investment and the nature of the transaction. Others, including RealtyShares, GroundBreaker and Patch of Land, do not charge investors any fees but instead charge borrowers. Crowdbaron accepts members from around the world.