Property crowdfunding: Why isn’t it working?

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Property crowdfunding was meant to be the saviour of first-home buyers hoping to get on the ladder, but the latest contender’s struggles show that Kiwis have not yet taken to the concept.

When Auckland’s housing market was at the peak of its last cycle, property crowdfunding was touted as a solution for those who could not afford to buy a house on their own.

The idea was that investors would pool their money to raise funds to invest in real estate, which would allow people a stake in a property for much less than the thousands required for a house deposit.

Since 2015, several crowdfunding enterprises have tried but failed to get off the ground – and now a new platform, Opoly, had not raised the capital needed to proceed with the two offerings it marketed.

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Opoly, which launched earlier this year, gave investors the option to buy a share in increments of $100 in a property which, once purchased, would be managed for three years before being sold.

Investors would then receive net rental payments quarterly, and their initial investment plus any profit when the property was sold.

Opoly co-founder Felix Watkins said the platform opened up investing in properties to everyone, without the requirement for a hefty deposit or onerous mortgage repayments.

The platform launched crowdfunding campaigns for two properties, an apartment on Ponsonby Rd in April and a commercial property in Orewa in May.

Neither property attracted the level of funds needed to proceed with the investment, but Watkins said the second campaign, which closed last week, raised more than the first.

Crowdfunding platforms which aim to buy property have struggled to gain traction in New Zealand.

Stock photo/Western Leader

Crowdfunding platforms which aim to buy property have struggled to gain traction in New Zealand.

Property crowdfunding platforms had been successful overseas and there was no reason why they could not be in New Zealand, he said.

“We are not deterred, but we have listened to a lot of feedback from people and will be changing our model to offer up new build opportunities which have a faster turnaround time to the point of exit, or sale, for investors.”

Issues around liquidity and being trapped in an investment appeared to have put potential investors off and the new model, which they were working with a developer on, should be more attractive, Watkins said.

“Hopefully, it catches on and crowdfunding becomes a more mainstream option for New Zealanders who are interested in property but have limited resources.”

While Opoly’s new model might break through to investors, history suggested it was likely to be an uphill battle.

Two of Opoly’s high-profile predecessors, The Property Crowd and The Ownery, were unable to generate sufficient interest in the offerings they put up to continue.

It was unclear why property crowdfunding had not taken off in New Zealand as it had in other countries, veteran investor David Whitburn said.

“Maybe it is Kiwi reticence about adopting something new and untested. Or it could be that most people simply like to have their own property, rather than the share they would through a crowdfunding venture.”

But property investment coach Andrew Nicol, from Opes Partners, said the issue with crowd-funded property was that it missed one of the main reasons people invested.

“The benefit of property is that it is leveraged. You can put in a 20 per cent deposit for a new build and get a mortgage for the rest. But when the house goes up in value, all the capital gain is yours.”

Opes Partners managing director Andrew Nicol says crowdfunding schemes overlook one of the key benefits of property investment.

Supplied

Opes Partners managing director Andrew Nicol says crowdfunding schemes overlook one of the key benefits of property investment.

Most of the crowdfunding and proportional ownership models that existed did not use bank lending to purchase the properties which meant they lost the key benefit of property, he said.

“Also, many of them are too short-term in their focus. Some of the schemes that 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 property investment, and now they would also be subject to the bright-line test.”

The lack of a real secondary market for crowdfunded enterprises was another off-putting factor to people as it meant they were unable to get out of the investment at short notice if they wanted to, Nicol said.

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