Is real-estate crowdfunding sustainable?

By cecilia.chow@bizedge.com

March 22, 2015 12:00 AM SGT

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The most high-profile case of crowdfunding for a social cause in Singapore was when Good Samaritan Gabriel Kang took to crowdfunding website Indiegogo to raise $1,250 to buy a new iPhone 6 for a Vietnamese tourist who was scammed at an electronic appliances shop in Sim Lim Square last November. Kang eventually raised $16,000. Crowdfunding is ideal for budding entrepreneurs such as Elshan Tang, founder and proprietor of Zelos Watches, who raised more than $150,000 in two Kickstarter campaigns last year; and Pirate3D with its Buccaneer 3D printer, which raised more than $1.44 million on Kickstarter, a global crowdfunding website, in 2013.

Crowdfunding appeals to aspiring artistes as well. In February, Grid_Synergy, a Singapore film production company, took to Kickstarter to raise US$50,000 ($69,537) for I’mpossible, a martial-arts comedy. Grid_Synergy also collaborated with CoAssets.com, a crowdfunding website for real estate. “It’s all about reach,” says CoAssets’ co-founder and CEO, Getty Goh.

CoAssets was launched about two years ago as Southeast Asia’s first real-estate crowdfunding website, and now has more than 7,500 registered members. The 37-year-old Goh, who has a master’s degree in real estate from the National University of Singapore, decided to be an entrepreneur after serving out his bond with the Singapore Armed Forces. He started Ascendant Assets, a real-estate research specialist firm, in 2008.

In 2010, he purchased a piece of land in Krabi, Thailand jointly with a friend, and they developed the project together. The duo had funded the development entirely with their savings. However, the venture was an eye-opener for Goh, as he encountered other aspiring developers who were struggling to take off from lack of funding. “I came to realise that for most entrepreneurs and developers, it is usually the initial $1 million to $5 million that is the hardest to raise,” he says. “The amount is too small for a private-equity fund to be interested in and too big for a single investor to swallow.”

Goh saw the opportunity to create a platform to provide investment opportunities around the region for his network of high-net-worth and angel investors, typically bosses of small and medium-sized enterprises (SMEs), as well as for developers who are seeking funding. In Singapore, the concept of crowdfunding in real estate is nothing new, according to him. “People are already co-investing in property deals together; for instance, husbands and wives, family members buying a property together or with friends. I chanced upon the idea that we [could] do it in a more transparent and innovative manner.” That led to the creation of CoAssets as a real-estate crowfunding website, which was officially launched in July 2013.

Types of projects

One of CoAssets’ success stories was a boutique developer in Sydney who wanted to embark on an 80-unit residential project. The gross development value of the project was A$10 million ($10.6 million). The property was already 90% pre-sold and the developer had secured 60% financing from a bank. But the developer was still short of A$4 million. Of that amount, the firm managed to raise A$2.5 million from friends and business associates. “They could have gone to a bank for mezzanine financing, but that would mean having to pay an exorbitant interest rate of about 25% a year,” says Goh.

That was when he suggested that the developer list the project on CoAssets. Within an hour of its online post, the developer received pledges for the full amount it was seeking. The onus is on the individual investors who made pledges to do their own due diligence and to seek advice from their lawyers before going ahead with the investment. After a month, the developer managed to secure the A$1.5 million that it needed.

Today, CoAssets features projects from Boracay and Quezon City in the Philippines, Pattaya and Chiang Mai in Thailand, Tokyo and even a luxury project in Las Vegas. There is even crowdfunding of an industrial unit in Midview Building in Bukit Batok, Singapore.

Some of the projects are bulk-purchase opportunities, whereby buyers will enjoy a sales rebate or discount from the developer. An example is a serviced-apartment development in Johor Baru called Grandview 360, developed by Northstar Frontier Sdn Bhd and designed by Singapore-based architectural firm Ong & Ong.

Other projects are opportunities to co-invest in a project with the property developer. One such instance is a Thai developer seeking co-investors to develop 10 bungalow lots for sale at US$95,000 each, according to its listing on CoAssets. The project, Jasmine Hills, is in the district of Doi Saket and will form part of Jasmine Hills Villas & Spa, which has already been operating for four years. The developer, Jasmine Hills Suites, has already received approval for Jasmine Hills from the Thailand Board of Investment under the “health and wellness for retirees” category. The minimum investment is US$25,000, and the developer is offering an annual yield of 8%.

Benefits and risks

A crowdfunding platform is an enabler, says Goh, and it gives the man in the street access to real-estate deals that were previously only available to high-net-worth investors. And they can in- vest as little as $1,000. “We are letting people dip their toes in real estate, understand the market better before they venture further,” he explains. So far, 80% to 85% of the over 7,000 members on CoAssets are Singaporeans and the remainder are Malaysians. The investment amount is generally in the range of $10,000 to $50,000. Investors tend to be SME entrepreneurs, high-net-worth individuals and aspiring angel investors.

Typically, the amount of money raised for each development project is $1.5 million to $2 million, notes Goh. There are inherent risks in real-estate crowdfunding, just as there are risks in investing directly in real estate and any other asset class. Goh points to London-based developer EcoHouse Group as an example. EcoHouse was purportedly raising funds for a landmark social housing scheme in Brazil. But it turned out to be a scam that left thousands of international investors, including those in the UK, Singapore and Malaysia, high and dry. It is something that Goh seeks to avoid. “We emphasise a lot on due diligence,” he says. “Although we are seen as a platform, inevitably there is reputational risk.”

Some of the safeguards he has put in place include handling only companies that are based in Singapore or have a presence in the city state, which allows him to check their records with the Accounting and Corporate Regulatory Authority. He also checks that the developers are licensed and have the land title and government permits or approvals for the development. “If they don’t show any of these things, they can’t list [on CoAssets],” adds Goh. “At the very least, we make sure that all these [developers] have the necessary credentials.” Likewise, he makes sure that the agents who list projects are licensed.

Out of every 10 developers that approach CoAssets, only five are eventually listed on the crowdfunding site. Of these, only half are successful in getting fully funded. Investors are also able to monitor the amount of interest garnered by a project and the number of days before the investment period expires.

Goh himself has invested in some projects listed on CoAssets. One is a development in Thailand, and another is a boutique residential development in the UK, where the developer is offering about 12% return a year.

Growth

Globally, crowdfunding for real estate is projected to hit US$2.5 billion as more people become comfortable with the investing model, according to a Bloomberg article earlier this month, citing a report from research company Massolution. This is 2½ times more than the US$1.01 billion achieved last year, with the amount in 2013 being US$396.4 million.

Collectively, over $36 million worth of investments in more than 15 pro- jects have been made on CoAssets. By aggregating the deals, Goh hopes that CoAssets will achieve a scale big enough to attract third-party insurers to underwrite the entire portfolio. “This will provide additional security and safeguard for investors in the event [that something] goes wrong,” he explains.

So far, no developer profiled has defaulted, and some have even started making payouts, with returns of up to 20%, says Goh. “In a climate where liquidity is increasingly scarce, businesses like mine open up an [alternative] avenue for investors and those seeking funding for projects. But we are not here to compete with banks or established financial institutions, and we are not moneylenders.”

In February, the Monetary Authority of Singapore came up with a proposal for securities-based crowd- funding, or for companies seeking alternative sources of funding through crowdfunding. However, CoAssets is not regulated by MAS because it doesn’t deal with securities or issue shares or bonds, explains Goh.

Last month, CoAssets closed a $1 million investment round by private investors, which valued the company at $13 million. An earlier round of funding was supported by Expara IDM Ventures as well as private investor Jeffrey Chi, managing director of Vickers Venture Partners and chairman of the Singapore Venture Capital & Private Equity Association. This Series A (significant round of venture-capital investment) round will support platform enhancements and regional expansion. CoAssets, which is based in Singapore, has opened an office in Malaysia and intends to open another office in Australia. It is also looking at other opportunities to expand. In fact, Goh wants CoAssets to be something more “holistic”. “We want to expand our repertoire beyond crowd- funding for real estate,” he says.

This article appeared in the City & Country of Issue 679 (Mar 23) of The Edge Singapore.

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