SA: the next real estate crowdfunding destination?

This is how Scott Picken, CEO and co-founder of Wealth Migrate would have it, with the crowdfunding wave expected to be the disruptor for the real estate industry.

Although crowdfunding – where projects are funded through monetary contributions from a large number of people online – is firmly entrenched in the US and Europe, SA is yet to see this phenomenon grow.

These markets are making inroads in democratising crowdfunding through regulation. Joy Schoffler, founder and principal of Leverage PR says the Securities and Exchange Commission in the US has ruled that non-accredited investors (or everyday citizens) could now participate in equity crowdfunding. “The deal flow would now come to investors faster and bring investors together,” Schoffler says.

Already Wealth Migrate is active in the space globally, providing return-hungry investors access to global property through its crowdfunding platform. Investors participate in the crowdfunding platform with a view of buying offshore property and developments, subsequently owning a stake and receiving dividends.

It seems like SA is the next crowdfunding destination if Picken gets his way. Wealth Migrate was recently awarded its Financial Services Board (FSB) licence, paving the way for domestic investors to crowdfund property investments in the country.

Floodgates open

In the past “hundreds” of SA property investors could only invest in offshore property, as they have done, considering that their investments to date are in the region of $30 million (R398 million). Overall Wealth Migrate has clocked up over 10 000 deals to the tune of $1.43 billion (R18.9 billion) on five different continents for more than ten years. It has partnered with developers who embark on real estate projects and helping global investors get a share of the action.

This, director at Caleo Capital Garth Wellman says is in line with investors growing appetite for offshore markets in a bid to diversify their investments. “Emerging markets are having a resources crunch driving currencies down. Opportunities in SA and emerging markets are available. But opportunities are bigger offshore,” Wellman explains.

Picken tells Moneyweb that with the FSB’s move, investors could contribute as little as $1 (R13.28) on a property investment. “You get to invest in the same opportunity as wealthy people. With crowdfunding you could invest in developments, yet with much less money. And you could be treated the same way [as wealthy investors], get same returns based on the capital put in and same voting rights.”

Perhaps convincing would-be investors to place their bets on crowdfunding where it has little track record in SA might be a hard sell. Fear of the unknown and trust are the biggest hurdles to overcome. Picken admits that there are two more problems at play for SA’s slow uptake of crowdfunding; scepticism around Wealth Migrate’s offering and push-back from financial institutions and regulators. On the former he quips: “we are seen as a bunch of lone nuts. We are not these raving evangelists that are trying to create a new Ponzi scheme to get rich.” Furthermore, banks and financial institutions “tell you that you’re going to lose money.”

He admits that like with a new disrupter in the technology realm to build trust, track record must be initially built, and then credibility would likely follow. “Crowdfunding in the first world is nice to have, everyone talks about it, and it’s a lekker thing. In the emerging world, it is becoming a necessity.”

Local real estate opportunities

For now, growing the SA investor base on local property projects is the focus. Picken says real estate opportunities are plenty for investors looking to amass wealth. Some of the opportunities, Picken says, are to invest in eight hospital developments located in SA and sub-Saharan Africa by seasoned property developer and co-founder of Wealth Migrate Hennie Bezuidenhoudt.

“Major brands are also keen to participate with us from residential developments to commercial opportunities.

“I am interested in developers that have long track records, long terms success and long term results – because that is the safe option and that is how you can be trusted.”

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