Leading property developer Mirvac Group [ASX:MGR] is joining the ranks of crowd funders. That’s a big deal. You’ll know why if you’ve been paying attention to the rise of crowdsourced funding.
If you’re not familiar with the concept, let me explain. Crowdfunding is a way for people to come together and invest in new ideas and projects. And there’s often no barrier to entry. You can invest as much, or as little, as you want.
Crowdfunding took off online, and that’s where it still generates most of its activity. It’s been the preserve of niche ideas that otherwise wouldn’t see the light of day.
‘Investors’ often just give their money away, with no promise of any return. At best, they’d get their promised product. But new crowdfunding platforms have started treating investors as actual stakeholders. Many now offer investors return on their contribution. And that appeals to investors in mature markets and industries.
Video gaming has gained the most from crowdfunding in recent years. It’s taken in well over AU$100 million on popular crowdfunding platform Kickstarter alone. But that’s just the beginning.
My colleague at The Markets and Money Sam Volkering wrote about crowdfunding two years ago. Here’s what he had to say at the time:
‘Crowdfunding is heading along the same trajectory. [Crowdfunding] will soon hold more power and sway than the largest financial institutions.
‘…Because crowdfunding and the companies they create aren’t going away. But what it might do is turn out the next Google or Apple. And if you’re savvy enough it’ll be the chance to get in at the earliest stage possible.’
Sam was onto something. He predicted that crowdfunding would take on a bigger role across many industries. And now, VentureCrowd Property is legitimising crowdfunding in property investment. That’s exciting news for all investors.
Why Mirvac is investing in crowdfunding
Mirvac’s announcement that they’re teaming up with online provider VentureCrowd should create waves. Property investors can now bypass banks and other lenders in financing new developments.
But this isn’t the first time real estate investors have dabbled in crowdfunding. RealtyCrowd is just one digital platform that has sprung up in recent months. What makes VentureGroup Property different is that it’s reputable. Mirvac is a trusted real estate investor across Australia. They’re bringing a level of expertise and capital that other platforms can’t match. And their involvement has convinced lenders Artesian Capital to jump onboard too.
That makes Mirvac’s collaboration with VentureCrowd the first major step away from bank lenders. They’re combining crowdfunding expertise with property expertise (and significant capital). That has the potential to revolutionise the real estate market going forward as more investors seek cheaper ways of creating wealth through property investments.
Why VentureCrowd Property is only catering to wholesale investors for now
Individual investors will have to wait a little longer to invest using VentureCrowd Property. You won’t be able to buy a property for yourself using the platform just yet. Currently the funding platform is only available to wholesale investors.
A wholesale investor could be a superannuation fund for example. Super funds tend to invest in larger development projects. But any trust is a wholesale investor. It will be up to them to show that crowdfunding has a future in real estate.
VentureCrowd Property will let wholesale investors invest as little as AU$100 of their money. They see this as a great opportunity for young investors. Younger professionals have less capital to spend on investments and this gives them a way of breaking into the market. That should appeal to anyone who wants to get their foot in the door. It could give them a diversified and long term exposure to property investment. That’s not something you can get for less than a deposit on a house.
Jeremy Colless, the chief executive of Mirvac, says that the crowdfunding could help trusts. He says the boom and bust cycle has been a weakness for property trusts and he thinks that ‘[what has] brought trusts undone in the past is borrowing’.
He also believes crowdfunding could remove the monopoly banks have on lending. And he hopes the platform will one day help regular home buyers.
For now though VentureCrowd Property is starting small. They’ll be providing a few apartments in Sydney as part of their initial trial. That will give them an opportunity to test the waters. But they say they’ll be adding more properties in the coming weeks.
They’re targeting younger, tech-savvy investors. But they hope in time that older demographics will see the benefits of crowdfunding.
It’s going to be interesting to watch how super funds in particular approach crowdfunding. Riskier super funds could be the first to commit to crowdfunding in a big way. Those managing aggressive growth plans are likely to be the first to make the leap.
Whatever happens, real estate is booming and house prices in select cities keep rising. The demand for luxury properties remains sky high among international investors. That’s a potent mix for real estate’s continued boom.
Markets and Money’s Phillip J Anderson says the property boom is only just beginning.
Phil’s free new report will show you the exact time to buy into real estate, before the peak hits. And just imagine if crowdfunding opens up a whole new market in the way we think it will. That peak could create untold wealth if you got in at the right time. To find out how to download his report, ‘Why Australian Property is on the Verge of a Decade Long Boom’, click here.
Contributor, Markets and Money