Crowdsourcing platforms have demonstrated how thousands of stakeholders can be brought together quickly and cheaply, but could this funding model find a home in the commercial property sphere?
Back in the pre-digital era when someone wanting to raise money for a project or cause would, quite literally, pass the hat around? Digital technology has largely put paid to that modus operandi: these days, it’s faster and easier to set up a GoFundMe page and let the cash collect itself.
Similar crowdsourcing-style platforms have been established to facilitate fractional investment in property in recent years.
Investors who don’t want to, or can’t, stump up the six- or seven-figure sum it takes to buy a dwelling of their own can pool their resources with others, via fractional property investment providers like BRICKX and DomaCom. The former buys properties and splits them into 10,000 shares or “bricks” apiece which investors can buy or sell via the platform, while receiving a proportionate share of the rent. The latter enables investors to commit funds to the purchase of a property that’s on the market and which, once secured, is run as a managed investment scheme, with investors able to buy and sell their shares via an online platform.
Opening up the market
Could more investment vehicles along these lines open the world of commercial property up to everyday Australian investors?
Historically, it has largely been the remit of those at the top end of town — high-net-worth individuals and high-income earners. The high minimum buy-in amounts — generally upwards of $100,000 — and sophisticated investor requirements imposed by commercial property syndicates and unlisted property trusts make it hard for mum and dad investors to play in the space.
But there’s no compelling reason why they shouldn’t be able to take a direct stake in office buildings, warehouses and shopping centres, if digital technology could be harnessed to make it practical and cost-effective for syndicates to administer a voluminous pool of investors. There may be a need for additional disclosure, but the attendant costs of delivering it could be an investment that syndicates are willing to make, particularly if those costs could be defrayed via higher management fees.
Upping the earn
Chief among the takers for such opportunities would be Australia’s army of Baby Boomers who continue to chase the returns they need to fund their golden years. In today’s ultra-low interest environment, the traditional term deposit has long ceased to be the default option for those seeking a modest return for minimal risk. Residential property returns are on the slide, from the 3–4 per cent being realised a couple of years back to a paltry 2–3 per cent. Meanwhile, the headaches associated with being a small-time landlord — tricky tenants, unplanned repair bills and the like — remain.
By contrast, the right commercial property can represent a higher-quality, more liquid asset and one which reliably produces a return of 4–5 per cent, without any of the attendant hassles.
Property investment done differently in the digital age
Historically, property has been the most conservative of sectors, slow to embrace change and a laggard in the technology space. But it need not be. Increasing receptiveness towards proptech — specialist technology and solutions aimed at the property and construction sector — and increasing demand from investors for access to the “safer than houses” commercial market could see the emergence of new, digitally driven investment vehicles. At Forbury, we’ll be watching this space with interest.
Steve Surridge is the executive chairman and founder of Forbury.