Real Estate Investor Magazine South Africa March 2014 | Page 26

FINANCE

KURT MITCHELL

The promise of big returns
Property crowdfunding for small investors

This is a growing trend in the United States
and the United Kingdom because it allows for
the man in the street to see benefits from the
complex world of property development.
It’s a nice way to invest in something and
benefit directly from positive performance,
without having to put a lot of money on the
line.”
In the United States, crowdfunding has
been legislated by the Jumpstart Our Business
Startups (JOBS) Act of 2012. In the United
Kingdom, the Financial Conduct Authority
oversees the behaviour of certain registered
crowd f und ing plat for ms. Elsewhere in
the world, state bodies are observing and
regulating the actions of these investment
mechanisms.
In South Africa, as yet, there hasn’t been much
action in property crowdfunding, but at this
point, there isn’t any legislation or authorities
to underpin this type of investment. It is likely
to follow this global trend, so it is predicted that
South Africa will begin to see more of these
kinds of development.

I

n countries such as the United States and
United Kingdom, property crowdfunding is
allowing individuals to invest small amounts
in properties and to see a return on investment.
South Africa is sure to start picking up on this
global trend.
You may have heard the term “crowdfunding”,
in which a person with a project or idea asks
people to invest small amounts in the project,
to contribute to the final result. The platform
Kickstarter is the global leader in getting these
sorts of projects funded.
But now, crowdfunding has been extended to
the property market in a slight shift from how

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March 2014 SA Real Estate Investor

the model usually works, to earn returns for
small investors.
A platform is created – either by a developer or
an individual with a good idea – to allow people
to pledge small amounts for a fund to buy and
renovate a particular property.
If enough investors are found, the property
is purchased, and the funds are cashed in, and
the renovation is carried out. At the end of the
investment term (typically around a year and a
half), all the small investors are paid out a return.
Some platforms allow for the investors to be given
updates on the development as it unfolds, and even
to participate in decision making about the process.
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Should the opportunity arise, entering into
any kind of funding contract with eyes wide
open, having read all the small print and in
consultation with a lawyer to minimise the risk.
Like any other kind of contractual agreement
– especially one that involves finances – you
should understand exactly what you are getting
yourself into, and what guarantees are in place.
Property crowdfunding is already happening
in emerging economies elsewhere in the world.
Colombia has just seen the construction of its
first crowdfunded skyscraper.
For South Africa, as a developing nation
with an emerging middle class, crowdfunding
may represent the ideal investment vehicle for
property enthusiasts keen to realise a return on
a small investment.

RESOURCES

ooba

www.reimag.co.za