All in for real

Property management company Durise has introduced crowdfunded real estate in Dubai. Can it change Image Credit: Supplied

Crowdfunding has become extremely high profile since platforms such as Kickstarter began to allow niche start-ups to raise millions of dollars for product development, which would have been impossible by conventional means.

But unlike funding the publication of ebooks, wacky jewellery or albums by unsigned musicians, a real estate project takes more than a smattering of Dh200 pledges from friends, family and strangers to get off the ground. Building an apartment building typically costs millions of dirhams and even the price of a single flat can run into hundreds of thousands. But this has not deterred firms in the US and the UK from launching platforms to allow crowdfunding in the real estate sphere.

A number of companies in these countries have had success with both financing and managing real estate projects. Last June, The Wall Street Journal reported that websites had collectively raised more than $135 million (Dh495 million) in debt and equity for crowdfunded realty projects.

Dubai debut

Last year, a pair of Dubai investors — Waleed Esbaitah, Founder and CEO of Durise, and Maher Osman, Co-Founder of Durise — brought the concept to the UAE, launching a crowdfunding project through their UAE-based property management company. Esbaitah says that while it’s still early days — the firm has only one project up for grabs and a handful of investors — Dubai is the perfect market for crowdfunded real estate.

Unlike in the West, expats in Dubai have larger disposable incomes and the willingness to invest in a growing market. But they may be unable to save enough to either get a mortgage or buy a property outright. Crowdfunding could give them a way in.

“You’re pooling your money with other people to purchase a home. If you don’t have the money to invest, you do it with 100 other people and together you can benefit from the rental income and capital gain when you exit,” says Esbaitah. Durise has been approached both by developers looking to fund new projects as well as by owners who wish to sell entire developments.

The project currently listed on the company’s website is four residential apartments in Queue Point, Liwan, worth Dh4.3 million. Minimum investment is Dh5,000 with a lock-in period of 24 months and an estimated yield of 6.6 per cent — a relatively good return in the post-financial crisis age. With Dubai’s population growing and rents rising, rental income is expected to increase, and with prices in some areas surging by as much as 30 per cent over the past year, capital appreciation can be banked on.

But we have been here before — Dubai has experienced boom and bust cycles in the past, and while analysts generally believe that the emirate is in a better place now than it was in 2008, there is always the chance of the market falling apart. What then for Dubai’s trailblazing crowdsourcers?

“It is not a magic wand that I created. [It’s] a new method of investing — I am giving people access to something,” says Esbaitah. “At the end of the day Dubai has the backing of the country. No matter what [property] will come back in value — as we are seeing now. It is not going to vanish.”

Opening up the market

So what’s in it for Durise? Esbaitah explains that the firm will take a 3 per cent cut of the total amount raised, but only if the project is fully funded. In return, it will manage the letting process, taking rent and paying out dividends to investors. So once an investor has chosen a project and paid up, they can sit back and relax. Property, he argues, is a far safer bet than tech start-ups, the traditional focus of largescale crowdfunding.

“You’re owning a chunk  of a real estate asset — whatever happens, that asset is there. If you invest in a company that is creating T-shirts, it may be a good idea today but what guarantee is there that it is going to [have an] IPO in the next four years? A lot of people are promoting start-ups but when you look at the broader situation… you’d almost be better buying lottery tickets with that money,” he says.

Pros and cons

Globally, experts have been bullish on the idea of crowdfunded real estate, even though the authorities in the US have narrowed the field to those with a net worth of more than $1 million. But locally analysts say that until the model is tested — i.e., a project is fully funded and a successful exit made — it is difficult to compare it to traditional real estate investment through real estate investment trusts (REITs) or property funds.

“Crowdfunding can work for real estate developments although it would start at a rector of Research at Naeem Holding in Cairo. “It needs to be introduced and regulated in an efficient manner to take full advantage of it.

“I think one of the biggest concerns will be liquidity, as unlike investing in securities or REITs, the investors’ capital gets locked in until an exit occurs. Investing in REITs will be a better choice for exposure to real estate.”

Esbaitah argues that crowdfunding gives investors far more choice in what they are investing in and provides them with an actual stake in a physical property. He says, “A fund is where a company collects people’s assets and manages them, and based on that get a performance fee annually. This has been available for as long as one can remember.

“With crowdfunding, you choose what you go into. We can prove to you that you own a part of a real estate asset. We’re not placing your money under someone else’s name. You have a vested interest in the property.

Source: Orlando Crowcroft, Special to PW.


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