Whether or not the crowdfunding market has entered its maturity phase becoming a scaling-up financial strategy for old and new ventures, it still remains a giant in the room of the online investment marketplaces: real estate crowdfunding.
According to statistics, the market is booming as it will pass from a size of $19 million in 2012 to an estimated $300 billion by 2025.
However, experts claim the sector is likely to go through a consolidation phase. In this respect, Bloomberg argued that
to attract investors, crowdfunding sites need projects for them to invest in; to persuade real estate developers to post deals, crowdfunding sites need investors ready to throw down dollars.
In the aftermath of the International Fintech Conference held in London last 12 April, Oliver* met up with Anouar Adham, CEO of MercyCrowd, a new breed of real estate crowdfunding platform to ask him about the current challenges of the industry and what’s next.
Oliver*: Hi Anouar and thank you for joining us! First of all thank you for your time. My first question is related to Brexit. During the conference, Chancellor Philip Hammond stated: “We will have to strive and graft and fight to seize the opportunities and make the most of them.” How Brexit is going to impact your business?
Anouar: Brexit is just impacting Europe while it is not impacting what we are doing in the Middle East, and in Dubai in particular, as well as in Asia. So we are waiting to see if passporting is continuing or not, but in any case we have already a plan regarding the European market. In other words, Brexit is going to have a limited impact on our business model because we are international.
O*: What are the implications of having a global reach for a real estate crowdfunding platform?
A: Generally speaking, real estate crowdfunding platforms are regional which means they are able to offer you single assets in single countries. By contrast, our platform is international in its DNA which allows investors to invest in different assets around the globe and also using different currencies. Therefore, they can diversify the risk associated within their investment portfolio.
O*: How does this aspect of your business model position a brand-new platform like MercyCrowd within the coming consolidation phase in the market?
A: We have a very different model compared to our competitors. In a nutshell, we are on the lower risk of asset selection and exposure, we are debt free, and international.
O*: Please, tell us more.
A: As mentioned before, we are the only real estate crowdfunding platform which allows people to invest internationally. Also, our business model is an equity business model, so we don’t use any debt to buy assets. This gives us a competitive advantage.
O*: What does it mean?
A: Most other real estate crowdfunding platforms are using leverage (e.g. bank financing to mortgage the property). However, this model involves a number of high risks like, for instance, the ones an investor runs in case of crashing markets or changes in interest rates. So, we decided to finance property with equity.
O*: What’s the impact of this?
A: UK householders have a debt of 92% of the current GDP and we are getting very close to the levels before the crisis. We look at debt in itself as a bad thing while
most of the people look at debt as something to use to consume.
O*: It sounds like a change of perspective…
A: We are asking people to invest more instead of borrowing. In this respect our market is very large. We have a very inclusive model which starts from a minimum of £50 investment. The idea is to be as inclusive as possible and really allow people to invest in a safe environment in real estate opportunities.
O*: From what you are saying it seems that you use crowdfunding as a truly tactical tool for your real estate finance approach, with marketing and sales at its heart I mean…
A: This is correct. In fact, another difference is that other platforms are financing developers, so they are taking the credit risk of the developer whereby for us the crowd is the end buyer of the project.
O*: We started off with Brexit. Getting back to the UK, and in particular to the areas where Brexit was born as they have been facing massive issues in terms of affordable houses, how could your business relieve this pain?
A: We are in the process of launching a new product which allows people to buy their home without any debt on their balance sheet. The idea behind this is that while you own a bit of your apartment, the crowd will own the remaining part. So you, as an owner, will pay a rent to other shareholders. The main thing is that as there is no debt involved in the process you will be able to buy back the shares of the other shareholders as soon as you have cash available.
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