The “savior of first-time buyers” struggles to take off
Real estate crowdfunding was supposed to be the savior for first-time homebuyers hoping to rise through the ranks, but the struggles of the latest competitor show the Kiwis have yet to embrace the concept.
When the Auckland housing market was at the peak of its last cycle, real estate crowdfunding was touted as a solution for those who couldn’t afford to buy a home on their own.
The idea was that investors would pool their money to raise funds to invest in real estate, which would allow people to take an equity stake in a property for far less than the thousands required for a home deposit.
Since 2015, several crowdfunding firms have tried but failed to take off – and now a new platform, Opoly, had failed to raise the necessary capital to proceed with the two deals it was marketing.
* Investors from the real estate crowd have the option to opt out after a “misunderstanding”
* Pressure is on investors to make sure properties pay
* The financial sense of investors in crowdfunding under surveillance
Opoly, which launched earlier this year, gave investors the option to purchase a $ 100 block share in a property that, once purchased, would be managed for three years before being sold.
Investors would then receive quarterly net rents, along with their initial investment plus any profit from the sale of the property.
Opoly co-founder Felix Watkins said the platform opens up investing in properties to anyone, without the requirement of a large deposit or expensive mortgage payments.
The platform launched crowdfunding campaigns for two properties, an apartment on Ponsonby Rd ââin April and a commercial property in Orewa in May.
Neither property has attracted the level of funds needed to make the investment, but Watkins said the second campaign, which ended last week, raised more than the first.
Real estate crowdfunding platforms have been successful overseas and there was no reason they couldn’t be in New Zealand, he said.
“We are not discouraged, but we have listened to a lot of feedback from people and we are going to change our model to provide new construction opportunities that have a faster turnaround time to the point of exit, or sale, for Investors.”
Liquidity issues and being trapped in an investment seemed to have put off potential investors and the new model, which they were working on with a developer, should be more appealing, Watkins said.
“I hope this spreads and crowdfunding becomes a more common option for New Zealanders who are interested in property but have limited resources.”
While Opoly’s new model could break through with investors, history has suggested that this is likely an uphill battle.
Two of Opoly’s high-profile predecessors, The Property Crowd and The Ownery, have not been able to generate enough interest in the deals they have come up with to continue.
It was not clear why real estate crowdfunding had not taken off in New Zealand as it has in other countries, veteran investor David Whitburn said.
âMaybe it’s the reluctance of the Kiwis to embrace something new and untested. Or it may be that most people just like having their own property, rather than the share they would get through a crowdfunding business.
But real estate investment coach Andrew Nicol, of Opes Partners, said the problem with crowd-funded real estate is that it is missing one of the main reasons people invest.
âThe advantage of ownership is that it is operated. You can put down a 20% down payment for new construction and get a mortgage for the rest. But when the house goes up in value, all the added value is yours.
Most of the crowdfunding and proportional ownership models that existed did not use bank loans to purchase the properties, which meant they lost the main advantage of ownership, he said.
âPlus, many of them focus on the short term. Some of the programs I have seen plan to sell a property within three to five years.
“That it is too short term to get the real gains from real estate investing, and now they would also be subject to the light line test.”
The lack of a true secondary market for crowdfunded companies was another off-putting factor for people, as it meant they couldn’t opt ââout of investing in the short term if they wanted to. said Nicol.