Destined To Disrupt: Real Estate Crowdfunding Gathers Pace In South Africa

Destined To Disrupt: Real Estate Crowdfunding Gathers Pace In South Africa

Crowdfunding — where a project is funded by a small contributions by a large number of people online —  is quickly catching up in Africa and has revolutionized many industries, from tech to taxis to non-profit, but real estate has lagged behind.

The phenomena is now witnessing rapid popularity in South Africa, with some industry players like Scott Picken, chief executive and co-founder of Wealth Migrate, expecting it disrupt the country’s property market.

The first property crowdfunding platform on the continent was launched earlier this year by South African real estate firm Realty Africa.

Picken’s Wealth Migrate, which has over $1.43 billion worth of investments in five different countries in the world, is also active in the crowdfunding space in other markets in the US and Europe, and is now eyeing the South African market after it got approval from the Financial Services Board (FSB) to crowd-fund from local investors.

South African property investors have for years only been able to participate in offshore real estate crowdfunding initiatives.

Picken told Moneyweb that with the FSB’s move, these investors could invest as little as $1 (13.28 rand) on any property investment they want.

“You get to invest in the same opportunity as wealthy people. With crowdfunding you could invest in developments, yet with much less money. And you could be treated the same way [as wealthy investors], get same returns based on the capital put in and same voting rights,” he said.

Garth Wellman, director at Caleo Capital, says the opening up of real state crowdfunding to South African Investors is in line with the growing appetite for local property investment and the need by most investors to diversify their portfolio.

Bunch of lone nuts

The next huddle after surmounting the financial regulators one, Picken says, would be to convince would-be investors to put their money in something that has very little track record of success on South Africa.

“We are seen as a bunch of lone nuts. We are not these raving evangelists that are trying to create a new Ponzi scheme to get rich,” Picken said, adding that banks and financial institutions were fueling the fear by telling investors they are going to lose their money.

“Crowdfunding in the first world is nice to have, everyone talks about it, and it’s a lekker thing. In the emerging world, it is becoming a necessity,” he said.

To ensure accountability and trust, Realty Africa has assigned global auditing firm Deloitte to conduct due diligence on all projects before it promotes them on its platform.

Realty Africa goes further as making sure that it has water-tight contracts with the property owners that prevents them from selling them.

This, it says, does not lock property owners out of the crowdfunding market.

“Each project for which there is a demand and for which a realistic investment proposal can be made is eligible,” Erik van Eeten, co-founder and chief financial officer at Realty Africa said in a statement.

Wealth Migrate also works with “developers that have long truck records, long terms success and long term results” to ensure that investors have safe options to invest in and in the process create trust in their crowdfunding platform.