Property investment has been a part of Australian culture since the earliest days of British settlement. But for a growing number of Australians, the traditional pathways to property investment are getting harder and harder to traverse.
Although there are signs the property boom is starting to cool, the entry price for an investment property in any capital city market is still comfortably into six figures. And even if investors can secure the funds for an outlay of that magnitude, they still have to accept the risk of tying up so much capital in just one investment.
These obstacles are a large part of what makes the recent trend towards the democratisation of property investment so compelling. In Australia, companies such as DomaCom, CrowdfundUP, Brickraise and VentureCrowd Property are using crowdfunding platforms to pool the funds of multiple investors, offering access to opportunities that would otherwise be out of reach for many investors. Crowdfunding allows investors to enter the property market with a significantly lower capital outlay, providing the opportunity to more easily diversify their real estate holdings.
Democratising property investment is starting to gain traction in markets around the world. About $3.5 billion was raised via property crowdfunding platforms in the US in 2016 according to Forbes. Although this is still a relatively small percentage of the market — the total value of US housing stock in 2016 was estimated by research company Zillow to be almost $30 trillion — it is a model that is growing in popularity.
Although Real Estate Investment Trusts (REITs) have long provided access to property investment without the need to purchase an entire asset, democratised funding platforms offer significantly more control and information to investors. Investors have real-time access to data on the performance of their investment and a more direct say in how the investment is managed. Deals are frequently pre-vetted, ensuring investors don’t have to negotiate pricing. Those with Self-Managed Super Funds have been some of the earliest adopters of this style of investment.
One of the great strengths of this model is that it is truly win-win — both investors and developers benefit. For those looking to fund a new project, the ability to reach a large audience quickly means allocations can be filled much faster allowing work to commence earlier. The technology also streamlines much of the paperwork typically associated with property investment, enabling users to literally invest at the click of a button.
There’s no doubt there are huge opportunities for the Australian property sector, but there are some critical factors to consider before choosing this model:
- Experience – does the team behind the platform have property experience specific to the deal?
- Liquidity – how will investors access their money? Does the platform offer liquidity via a secondary market?
- Deal flow – is there enough volume on the platform to allow adequate diversification?
- Trust – how transparent is the platform in disclosing investment performance? Is information available on the performance of past deals? Does the company co-invest alongside the crowd, thereby giving more confidence to the investor?
- User experience – in today’s mobile society it is critical the interface with the investment app is as intuitive as possible.
There is no doubt democratised investment platforms will only grow in popularity and maturity in coming years. For progressively-minded property developers, they can provide access to a source of funding that has previously been almost entirely untapped.