Is crowdfunding the future of real estate investment?

The real estate sector is continuing its growth trajectory in the UAE, as it has been for some time. So it comes as no surprise then, that the total sum of real estate transactions in Dubai alone reached Dhs22.7bn in June.

However, not every would-be investor has access to huge amounts of capital. But, things are changing. Markets are becoming more accessible in different ways – and right now, crowdfunding presents an exciting opportunity for real estate businesses.

But how? And why? Because it’s a route for developers to legitimately obtain funds from a number of different sources – rather than rely on a small group to bankroll ambitions.

But how does crowdfunding for real estate work? What advantages can real estate crowdfunding offer investors and sellers alike? Who’s already delivering great services in the space?

Let’s take a closer look.

How does real estate crowdfunding work?
Crowdfunding isn’t just a trendy way for hobby projects to raise cash and boost awareness. In recent years, it’s become a popular alternative to more conventional methods of financing – especially among real estate investors, right here in the Gulf.

Locking down the necessary finance to fund a real estate deal can be difficult – whether you’re a novice or a seasoned veteran. But appealing to a broad group of investors who each contribute a small sum of money differs significantly from more established ways of fundraising.

The fact that it’s a digital endeavour helps drive awareness for one. Real estate developers and business owners launching crowdfunding projects can use social media platforms like Twitter and LinkedIn to promote their businesses to larger audiences of potential investors.

However, there are many other benefits that crowdfunding can unlock for real estate.

1. Increased options: Real estate crowdfunding broadens your pool of potential investors while expanding your funding options. Whether it’s friends, family, business associates or strangers – you can reach them all with crowdfunding. Crowdfunding gives easy credit and funds access instead of the need for loans. This helps smaller operators obtain money for contracts; especially useful when more traditional options are limited and for those that don’t have the detailed forecasts needed for capital investment.
2. A marketing opportunity: Crowdsourcing is a terrific marketing tool for entrepreneurs building their brands. Real estate developers can easily increase their investor network by using social media and crowdfunding platforms. Company websites highlight company objectives and goals, past projects and returns and it’s great to put this information in front of as many real estate professionals as possible.
3. Learn from your network: Word-of-mouth and client loyalty take time, but after successful crowdfunding a few real estate projects, you’ll notice a big boost in your professional network. To really build investor loyalty, real estate developers should monitor user comments, and seek feedback at every opportunity. Listening to seasoned investors’ remarks can help you discover areas of improvement.
4. Proof of concept: A successful real estate crowdfunding campaign can prove a project’s popularity and viability. During campaigns, engaging project material might attract new investors and earn support through real relationships formed around your passion and hard work. After giving you money, your backers will care about your success – not just because they are invested in your development, but because they know you.

Like anything, the more you understand about crowdfunding real estate, the better decisions you can make – and the knowledge you have, the more this will help you spot gaps in the market.

How to build a real estate crowdsourcing platform
If you want to start a website or platform and profit from this industry, then you’re going to want to read up on both crowdfunding tech and the real estate market. Like anything, the more you understand, the better decisions you can make – and the knowledge you have in either crowdfunding or real estate can help you spot gaps in the market.

There are also white label software solutions out there – such as LenderKit – which can present a great way of getting to market faster. They also help with accreditation, compliance, and take care of all technical requirements involved in building a software platform.

Players in the market
SmartCrowd: A licensed real estate crowdfunding platform called SmartCrowd enables users to potentially grow their wealth by pooling their investments in rental homes.

SmartCrowd is a digital platform that gives its customers all the advantages of direct real estate investments. They do this by owning the properties and lowering customer risk by spreading their wealth across a number of properties – with an overall reduction in capital expenditure. The idea behind SmartCrowd is to make real estate investing hassle-free and less risky by enabling investments for as little as Dhs500.

The Dubai Financial Services Authority (DFSA) oversees SmartCrowd, which is registered in the Dubai International Financial Centre (DIFC). The DIFC’s financial services are governed by the DFSA so they’ve secured the highest level of financial services trust for consumer protection.

Stake: Stake offers customers a less time-consuming way to expand their investment portfolio with real estate and it recently launched its product and business in Dubai.

Stake was co-founded last year by Rami Tabbara – a former senior vice-president of sales at developer Damac and a founding member of The First Group – and Manar Mahmassani, a former managing director of Falcon Group and a former vice-president of Deutsche Bank. Stake is billed as a digital-first property investment and asset management company.

At a time when Dubai property prices are softening, Stake aims to address the issues with property ownership by ‘democratising property investment’.

Aqarchain: Aqarchain was the first decentralised real estate marketplace with a metaverse called Aqarland which is mapped out based on real-world properties. It’s a pioneer in fractionalising non-fungible tokens (NFT) of physical real estate assets. By turning the real-world real estate asset into a digital one, the company has been able to do away with the middlemen usually associated with real estate investment.

A technology developed by Aqarchain tokenises real estate assets based on actual real estate characteristics, such as square footage. The smallest piece of the property that can be bought is 1 square foot and this gives people looking to build investment portfolios more opportunities to get their foot on the ladder.

Lorenzo Jooris is CEO of Creative Zone