Crowdfunding is essentially a simple business, which raises funding for a project or venture from a large number of people who each contribute a relatively small amount, typically via an Internet platform. The global crowdfunding market is worth $84 bn as at 2018 and is set to reach $114 bn by 2021, according to a report by EY.

The US has led the way in real estate crowdfunding, with companies such as Fundrise, Crowdstreet and RealCrowd active in the market. One of the largest, Fundrise, has transacted $4.9bn in total and has more than 130,000 investors on its books.

In Asia Pacific, a number of Chinese property developers, including Dalian Wanda and Country Garden have raised funding through independent crowdfunding platforms. Meanwhile include Singapore-based CoAssets has raised S$100m of funding since its launch in 2013 and is listed on the Australian Stock Exchange, although it is seeking to delist).

Chris Marriott, chief executive, South East Asia, at Savills, says: “This emergent sector offers a democratization of funding and gives retail investors access to private real estate.

“The post COVID-19 environment will force banks to focus on their existing loan books and be cautious about new lending. This creates more room for alternative lenders, including crowdfunding, and means higher returns, albeit with more risk.”

Mainstream real estate players have so far largely ignored crowdfunding, however ARA Asset Management took a step into the world of fintech in May when it acquired a majority stake in Minterest, a Singapore-based crowdfunding platform established in 2016 and which has so far focused on crowdfunding loans for SMEs, but which is now turning its attention to real estate, backed by ARA’s expertise in the sector.

Janice Koh, director of fintech at APM (ARA’s property management business) and chief commercial officer at Minterest, says: “The credit assessment for crowdfunding is less rigid than banks and much quicker. We use technology, a data-driven credit assessment model which assesses more than 350 data points and can process loan applications in 48 hours. To investors we offer choice and diversification over a range of products. We also provide comprehensive detail about the company and the deal on offer so that investors can make an informed decision.”

The loans arranged by Minterest tend to be higher-yielding and for a shorter term than bank lending – three to 12 months. The first real estate deal was a S$500,000 three-month fixed income product backed by a secured mezzanine loan, with a gross interest rate of 6%, to fund a residential development in Melbourne, by way of co-investment with Straits Real Estate. The loan, albeit a small deal, was funded in 11 minutes by 21 investors, says Koh.

While the larger US-based real estate crowdfunding platforms have focused on their domestic real estate market, Minterest is set to be more internationally diversified, as ARA has a market presence in 28 countries.

Real estate crowdfunding seems to be provoking investor interest. Koh reports an increased number of new sign-ups for the Minterest platform and more deals are in the pipeline. For the first real estate product launch, the Minterest investor base is mainly Singaporean; however products can be marketed worldwide with the exception of the US. “We think the platform could be writing S$100-200m of real estate loans within a year,” says Koh.

For the moment, the fundraising through crowdfunding loans will be extended to companies linked with ARA, such as Straits Real Estate. However, this could be expanded in the future and Koh says asset managers around the world have shown interest in the concept and platform.

It is theoretically possible to crowdfund equity investments, she says, however this would be considerably more complicated, not least due to the longer timescales involved. However, some US real estate platforms such as Fundrise offer longer-term equity-focused strategies.

“Crowdfunding could be used by real estate private equity firms to access retail investors, most likely accredited investors too small to gain access directly to funds,” says Marriott. “With a robust trading platform, the crowdfunding slice of a fund’s equity could also provide liquidity outside of the secondaries market.”

The sector is not without risk. “Investors need to understand where they are in the capital stack and the covenant risk they are taking on,” says Marriott. “It is not just a question of loan-to-value and the interest rate. There is also platform risk

Nonetheless, he expects real estate crowdfunding to grow in Asia Pacific as a source of finance which is an alternative to and complementary to, bank lending. “Crowdfunding also allows real estate investors and managers a better understanding of the private investor.”

Further reading:
Minterest website

Contact us:
Chris Marriott | Simon Smith