I was recently asked to participate in a roundtable at Urban Thinkers Campus in Dubai. The Urban Thinkers Campus is an initiative of UN-Habitat conceived as an open space for critical exchange between urban actors who believe that urbanization is an opportunity and can lead to positive urban transformations.
The Campus is a place to share, learn and brainstorm on the new urban paradigm established by Habitat III. It is also envisioned as a platform to build consensus between partners engaged in addressing urbanization challenges and proposing solutions to future urban and suburban challenges.
This great initiative is organized and lead by Dubai Real Estate Institute an arm of the Dubai land department. The theme I was part of was, “Real Estate Investment and Innovation”. Some of the questions we were tackling were …
1. What are the real estate finance processes that are currently disrupted?
2. How will crowdfunding change the face of the real estate finance cycle?
3. Are there new financing policies and tools to encourage investors to develop programs pertinent to the SDG (sustainable development goals)? https://www.undp.org/content/undp/en/home/sustainable-development-goals.html
This was a very fitting event to be part of. I had founded Smart Crowd on the principles of levelling the playing field and giving the average person an opportunity to unlock their wealth potential by accessing an asset class historically restricted to the wealthy who have used it accumulate and preserve capital. It was great to discuss the evaluation of crowdfunding and peer to peer models that give the average person the chance to put their capital to work for them rather than continuing to work for their capital. Historically, that has not been possible in a significant manner where most of the population is continuously battling to work hard to build capital. There are many benefits of crowdfunding to the end user which I have discussed in other posts but there are also many socio-economic benefits of such models to the wider economy.
I genuinely believe that all businesses have obligations beyond the bottom line and shareholder value. Companies should contribute to the society at large which in turn will help grow their business further as there will be more users of their services or products. For this reason, one of the first things I did when I founded Smart Crowd was to have an independent economist prepare a white paper detailing the social-economic benefits of establishing a real estate crowdfunding model. The reason for such initiative was twofold, one to better understand what we can help achieve and second to educate the authorities on the benefits to win their support.
I have summarized some of the findings. There are many benefits but below are some that I find critical and relevant for the UAE market:
Broader Investor Base – By lowering the entry point into the asset class you are able to broaden the investor base to include the marginal investors that don’t have the ability to purchase investment properties outright or unable to secure necessary financing.
Diversified Real Estate building – Real estate crowdfunding makes it possible for individuals to create a diversified real estate portfolio without taking on too much risk and leverage. It allows individuals to put their capital to work whereas historically they had been purely focused on working to build their capital.
Creating a new transactional marketplace – The crowdfunding platform benefits not only the investors but also real estate companies and the real estate market by creating a marketplace where the sellers are connected with thousands of motivated investors. Depending on the platform and technology behind it can help eliminate inefficiencies in the transaction cycles while also making the pooling of investors and capital more efficient.
Convenience and Lower Costs – Traditional direct purchase model requires a lot of effort not only in gathering information but also dealing with many middlemen. The crowdfunding platform simplifies the process where one can access real estate market from a simple online portal.
Boosting the Real Sector and the UAE Economy- By introducing new investors to the market can help absorb some oversupply. Typically, crowdfunding investors are long-term investors looking for a secondary source of income through rental income which helps to mature the real estate market. Also given the lack of options in the market for many to invest their hard-earned money most expats remit their savings back to their home country. Approximately $21 billion get remitted every year from UAE, even is such platforms can help retain 5% of the capital within the economy can have a significant multiplier effect on the economy which in turn should also help the real estate market.
Lowering risk to the financial system – Crowdfunding relives some of the burdens on the banking sector by creating an alternative source of capital as crowdfunded real estate investments are financed through equity, there is no creation of primary debt, and the result is a more stable financial sector.
Ease of FDI – crowdfunding platform makes it easy for foreign investors to test the market with small investments. Also, the ease of transaction makes it compelling for those that don’t have the resources to travel and gain access to market information. This is particularly attractive to the middle class of the UAE expat home countries from Egypt to India. There are many in those markets that would want to diversify their wealth by investing in UAE a market viewed as a safe haven in the region. Crowdfunding platforms make it easier for them.
I hope this helps you understand the benefit of crowdfunding platforms. If interested you can access the white paper detailing these benefits further on our website at www.smartcrowd.property . I genuinely believe models like Smart Crowd can help solve some of the social challenges around inclusion, income inequality and building sustainable cities and economy. By allowing a wider demographic to access the real estate market and unlock their wealth potential we can help create a sense of financial freedom. In turn, this will lower stress, making the population more productive and good corporate citizens contributing to making Dubai the “Happiest” city in the world.