Realty crowdfunding: Is it legal?

Durise, a Dubai-based real estate crowdfunding portal, and agency is challenging the traditional investment paradigm and bringing a new way to invest in property through crowdfunding.

PW catches up with Waleed Esbaitah, founder and CEO of Durise, to know more about his new venture and the merits and pitfalls associated with crowdfunding.

How does crowdfunding work in real estate?

In real estate crowdfunding, a group of investors raise a sum of money to buy a specific property. Then a third party, such as us, manages the property funded on behalf of the crowd. This gives real estate investors the chance to diversify their portfolios and reduce their risks by sharing them with other investors. Unlike Real Estate Investment Trust (REIT), crowdfunding investors will put their capital into tangible properties and know where their money is actually going. Each investor’s money is backed by a physical property, making it the most secure form of crowdfunding.

Durise has completed its first project. What has been the response?

We are very close to fully funding our first project, which is a two-bedroom apartment in Queue Point Dubai worth $320,000 (Dh1.17 million). We see this as a promising area with the potential for substantial growth over the next few years. We have raised $100,000 now and have another 75 days to go.

The response has been good, but this idea is in its infancy in Dubai and people are still familiarising themselves with the concept. We are confident that we will fully fund the project, but we hope to do it faster with each project. As people get more comfortable and understand the concept better, we will be able to complete an investment in two weeks or less.

Tell us more about your investors?

These are people who have savings and a decent level of disposable income. They are the individuals who want to diversify their portfolio, as well as gain a higher  return than the low interest rate in a bank account.

What are the advantages of crowdfunding over direct ownership?

Never put all your eggs in one basket. Crowdfunding encourages and gives you the option of putting your eggs in different baskets. Direct ownership investments are financially intensive, making it difficult for someone on an average salary to afford. For example, in a crowdfund, your $100,000 can be spread among 10 properties, giving you different returns and different levels of risk, as well as payback periods. The same cannot be said if you invest in a single unit.

 Is it legal in the UAE? What are the risks?

Crowdfunding a real estate is new. It is yet to receive international approval. Each country is dealing with it on an individual basis. The UK has recognised it, and so has the US, by laying down certain guidelines. For this region, a formal framework is yet to be decided.

The UAE does not have laws that refrain or allow connecting like-minded investors on a web portal, which is what crowdfunding is. We are operating within the available framework by developing a proprietary structure as per the existing laws. Moving forward, we are eager to have this industry officially recognised by the government, as it is the next big move in investing and finance.

When you invest in a crowdfund related to real estate, the risks involved are based on unforeseeable factors, which affect all industries, not just this one. Things like natural disasters, political unrests or severe financial disturbances are examples of what could go wrong.

The property purchased by investors is in the name of a free zone company. Is it safe?

There is no safer method of ownership than through another entity, also called a Special Purpose Vehicle (SPV). Other than issuing an individual title deed to a property to each and every investor, which is impossible, this is the best option. This
method is used by all investment banks, wealth managers, and real estate developers to pool investors into a single investment, giving them each rights of ownership.

Source: Ashutosh Gupta, Special to PW

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