Reluctance by banks and the private sector to offer finance to developers is forcing developers to branch out in their search for funds and Australian crowdfunding platform VentureCrowd is showing individual investors seem to be willing to make up the shortfall.
The platform recently raised $1.7m from 50 investors for a 44-lot sub-division in south west Sydney, which follows the $900,000 it raised in June for a separate 35-lot subdivision in west Sydney.
Originally developed as a crowdfunding platform for start-ups looking for equity, VentureCrowd chief executive officer Rob Nankivell said the platform has a number of potential property projects in its pipeline as it anticipates funding demands will continue to grow.
“What we’re seeing, at least in conversation with developers is that banks are pulling back and the private sector providers may run into capacity constraints if they haven’t already,” Nankivell told Your Investment Property.
“Equity co-investors are always in demand, so I’d imagine there would be continued demand from developers,” he said.
From the individual’s point of view, Nankivell said the opportunities offered through platforms such as VentureCrowd will grow in popularity as people look to diversify.
“Australians do have a very large exposure to listed shares and their own homes, they’re probably the two dominant asset classes so unlisted opportunities are of interest because they add diversification to portfolios,” he told Your Investment Property.
“If you just take property in general terms it’s a fairly generic asset class, but there are who lot of little, interesting sub-sections to it and it’s about giving people access to them.”
With its most recent project, Nankivell said VentureCrowd has done exactly that, with the convenience offered by the platform a major attraction for investors.
“The average ticket size is about $40,000. So for those who want to invest pieces of $40,000 every now and then via their SMSF or whatever to different aspects of property, then our model becomes appealing,” he told Your Investment Property.
“Our clients aren’t Gen Ys who have been priced out of the market. They’re pretty much high net-worth individuals who are looking to diversify and really understand what we’re offering.
“I would say that just about all of our investors could go out to somewhere like south west Sydney and buy a property and do a subdivision. They have the capacity to do it, but not the time.”
By working with greenfield developers, Nankivell said VentureCrowd is also able to keep down the time it takes for investors to see a return, though he said longer-term projects may be offered in the future.
“This deal was about a 13 or 14 month transaction. There’s no above the ground development, it’s just a greenfield residential sub-division which keeps it relatively simple.
“So when the construction of the infrastructure is completed and the lots are settled then everybody gets their money back.
“Not all deals are so short, we think there will be ones that are attractive that are across three to five years or maybe longer from yield perspective if you have a deal with a secure tenant.”
For VentureCrowd, Nankivell said its next offering would come when it finds a project that fits its criteria of ensuring its investors are offered the same risk and return terms as others who have committed funds, but he believes the crowdfunding presence in Australian real estate will continue to grow.
“Whilst cash rates remain low and equity markets stay choppy people are going to be looking for alternative investments and if crowdfunding can offer people access to interesting investments on good terms then I think it really can grow,” he told Your Investment Property.