Evolution of Crowdfunding within Real Estate…?

Posted Tuesday, February 10, 2015 Comments (0)

The real estate investment landscape is ever changing with investors comprising of mum and dad investors, sophisticated investors, superannuation funds, equities and the list goes on. This evolution has subsequently seen the growth of investment vehicles such as property securities, REITS, funds and private equity. 

This evolution continues with the emergence of Crowdfunding within the real estate sector. In times of tighter credit requirements, crowdfunding offers investment opportunities to a variety of investors allowing individuals to directly invest in specific projects. 

Online platforms such as Realty Mogul and Fundrise (both from the United States) provide the opportunity for investors to buy shares in specific properties or development projects. Investors can fund the entire project or diversify for as little as US$100, making this investment accessible to any individual or entity. 

This leap from REITs allows investors to invest in a specific project and know exactly where their money is going, as opposed to the broader metric of REITs, in which the investors’ funds are diversified across the entire portfolio of assets. Fundrise fosters local investment; by the community for the community. This opens up investments to individuals of all levels of financial means with the hope of changing the way real estate is funded. 

Having this level of local interaction is the interesting part of crowdfunding; who better to invest in the community than the ones that inhabit it, thereby giving them the power and ownership to literally accept, build, create and own what is around them. 

Will this change Australia’s real estate investment landscape?… 

Real estate crowdfunding in Australia is still a tricky issue, unlike our American counterpart in which legislation welcomes this type of innovation. Australia still has tough regulatory requirements for such schemes – and I must add not without validity – due to its high exposure to a mass retail investor driven market. While crowdfunding within a real estate context seems to offer great avenues for not only investors but for those requiring funds, it does not come without risk. Be warned that those who participate should understand the risk and proceed with caution. It is best approached by investors that can see beyond the local community and take into account all the fundamentals of the project and larger trends in global markets, as even the experienced can be burnt in the real estate market. 

Many questions remain regarding the regulatory framework around crowdfunding within Australia – will we see this trend emerge and will it be welcomed not only by regulators but investors too? Only time will tell…

Paul Buckle is a Partner at Balmain Commercial Brisbane
Email Paul: pbuckle@balmain.com.au
Linkedin: https://au.linkedin.com/pub/paul-buckle/70/298/337

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