Crowdfunding seems to be taking off around the world, particularly as a source of funding for creative projects, charitable causes and non-profit initiatives. Websites such as Kickstarter.com have enabled creatives around the world to fund their projects.
Recently, however, the crowdfunding model has been used to fund commercial real estate in the United States, where small commercial property projects, mostly redevelopments and refurbishments are advertised on a crowdfunding platform to raise equity to purchase and improve the building. Fundrise.com was the first company in the US to offer this product.
South Africa has a very bouyant commercial property sector with a large number of listed property companies, who have now recently obtained REIT status. There is still a large number of commercial properties that are unlisted as their values are too small to be considered by listed property funds. Many of these properties are under-utilised and could do with some extra attention. A property crowdfunding platform that targets these kinds of properties could, in addition to adding value to its investors can improve areas that are currently in decline and create jobs. Something dearly needed in the current economy.
The idea is that small retail investors are able to invest in shares in these small property projects. This kind of investment would be an alternative property-focused investment to listed property, which is subject to stock exchange fluctuations, and direct property investment, which is often too large for individual investors. This kind of investment could unlock a large additional pool of investors who wish to invest in direct property (not listed property) but are unable to access direct commercial property due to the large minimum investment sizes.
To get a better idea, have a look at this video, from Fundrise.com, explaining how the model works:
