Crowdfunding is the collection of money from a large group of individuals in order finance a project, start-up company, or campaign and is usually done through the internet. This method of pooling together small amounts of money for an expensive goal appears to be spreading to investments that require a large amount of capital – specifically, real estate.
Currently, real estate crowdfunding has become popular in the United States, partially due to new legislation that permits the raising of funds online; however, different laws in Asia may hinder the growth of these new investment platforms.
In Singapore, for example, the Monetary Authority of Singapore (MAS) regulates the collection of public funds, but not the real estate market. Because of this, a way to use crowdfunding has been to purchase international property (in this case, property not located in Singapore), through a fund collection platform based in Singapore.
One Singaporean website is doing exactly this. CoAssets.com collected over SG$3,000,000 from over 1,300 users during their first six months of operation. Individuals are able to invest in real estate developments located in Malaysia, Thailand, Philippines, Australia and China.
While crowdfunding is still in its infancy, there are several different reasons why it could become the next big thing in the Asian property market. If one really thinks about it, co-ownership of properties has already been done for decades worldwide. The only difference is that by using the internet as a distribution channel, the process is made less bureaucratic and expensive by eliminating fees, numerous middlemen and complexity. Crowdfunding is merely an evolution of what already is.
Smaller developers will benefit from crowdfunding’s rise as well. Banks are generally hesitant to loan property developers amounts between SG$1 million and SG$10 million because of their fees not being worth the additional paperwork. SMEs would be given an alternative to bank financing.
Crowdfunding will also make the property market more accessible for investors by giving them an ability to purchase part of an apartment, office building or retail store: types of property that typically have higher rental yields than a residential unit, but are prohibitively expensive to most individuals.
But while real estate crowdfunding seems like it will eventually make its way across the Pacific from the U.S., the risks, lack of regulation, anonymity by both parties and other issues make some skeptical. While crowdfunding is inarguably a success for some types of transactions, as websites such as Kickstarter and IndieGogo prove, time will tell whether investors in Asia can benefit from it.
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