Crowdfunding Will South African Real Estate Bite?

Posted On Wednesday, 05 December 2012 08:43 Published by eProp@News
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Why hasn’t South Africa got a Real Estate Crowdfunding platform? Shouldn’t someone be considering it?

It may seem unlikely that anyone will waver in favour of Crowdfunding whilst pondering investing in REITs/PLSs  right now, especially in South Africa since no such option exists, but already in the US, Real Estate Crowdfunding platforms have emerged. For instance, Fundrise was founded by Ben and Dan Miller, who spent the last few years building up a booming commercial real estate business. Frustrated with Wall Street investors, the brothers decided to build Fundrise to democratize the process of investing in commercial real estate.

Given the novelty of Crowdfunding many remain in the dark. Crowdfunding describes the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations.”Crowdfunding is utilised widely to fund blogs, political campaigns, scientific research, start-up companies, music, the arts, as well as so called Angel Investing and now even real estate.

Ben Miller of Fundrise: “We felt that the private equity funds we looked to raise money from typically had no natural connection to the neighbourhood buildings we were developing,” So the brothers cut out the traditional middlemen and created the opportunity for direct investment. Now Ben says they believe that Fundrise “provides a platform that can revolutionize who influences neighbourhood development by giving the general public the opportunity to invest in and ownlocal real estate and businesses.”

Forbes estimates that annual Crowdfunding transactions go as high as $500 billion annually compared to 2011’s $1.5 billion (anticipated to be $3 billion in 2012).  If Crowdfunding even begins to approach that scale, it will completely change the landscape for start-up financing.

In essence Crowdfunding is a form of “Micro patronage”, a system in which the public directly supports the work of others, donating via the Internet. This is as opposed to traditional patronage now many "patrons" can donate small amounts, rather than a small number of patrons making larger contributions.

Countries long considered on the periphery of the world economy are benefiting. "We want to get Africans into the crowdfunding space to invest in Africa's own start-ups," said Munyaradzi Chiura, head of GrowVC's Africa operations in Harare, Zimbabwe."Crowdfunding is particularly suited to the African context because the amounts are small, thereby reducing the risk, and investors are not going it alone." Projects in which "anyone can invest"could receive backing from outside Africa.

Considering the ups and downs, one has to look favourably on Crowdfunding in that it allows good ideas which do not fit the pattern required by conventional financiers to break through and attract funds through the ‘wisdom’ of the crowd. Proponents also identify a potential outcome of Crowdfunding as an exponential increase in available venture capital. On the down side, business is required to disclose the idea for which funding is sought in public at a very early stage. 

Is there a role for Crowdfunding in the South African Property market? It may not hold the lofty promise of creating high growth tech companies, but it may offer an alternative capital raising platform for the property industry. 

Last modified on Wednesday, 05 December 2012 09:48

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