MEGATRENDS THAT CHANGE LIVES
I embarked on a different type of real estate journey three years ago, setting out to change how people invest in real estate. My team and I saw how our daily lives had been changed by a combination of the acceptance of shared economy, distrust of big corporations, demand by consumers for empowerment and massive advances in technology that allows for the unprecedented creation of ecosystems. We are now using transport services differently, booking apartments instead of hotels, engaging in targeted marketing via online channels, looking for employees and employers online, and more recently, changing the way we invest in real estate.
We began our journey, very focused on creating a platform for crowdfunding for investments in real estate deals. To comply with regulations, we had to serve only accredited or sophisticated investors, but the lack of understanding in the potential of crowdfunding greatly inhibited our progress. It was really frustrating and difficult as we were unable to find service providers who thought differently and did not offer standard solutions. We were also mightily stressed over how to figure out a cost structure that could help us sustain the operations despite being funded by a family office.
SOLVING PEOPLE ISSUES
At the same time, our commitment to offer alternative investment channels was reinforced when we saw how the global flow of funds and individual investors continued to cause disruptions in house prices in many major cities. The disparity in purchasing power took on a global scale as richer individuals crossed borders to purchase residential units in prime cities, such as Hong Kong, Singapore, Melbourne, Sydney, Toronto and Auckland. Locals were pushed out further away from city centres and residential units became more unaffordable for the younger generation, causing much resentment and protectionist policies in many countries. It led us to believe that alternative investments via a crowdfunding platform might be one way to enable people to invest in real estate and enjoy higher returns in a manner which are more socially responsible.
SOLVING DEVELOPERS’ PROBLEMS
We also saw how the tightening of lending by banks had caused developers to not be able to commence new projects and make some of them go bankrupt. This had worsened the shortage of housing in some cities, particularly the low-cost housing segment. Crowdfunding and peer-to-peer lending have been touted as among potential alternative platforms that can give small developers access to funding. We saw a number of such platforms used in many countries and they helped solve some of the funding needs.
DEMOCRATISING REAL ESTATE?
Real estate crowdfunding is generally deemed to be a process of democratising real estate as it opens up access to property ownership to the masses. On our journey, we met Prodigy Network founder Rodrigo Nino in Singapore. Nino was one of the forerunners in this space. He shared with us how he managed to crowdfund a high-rise commercial building in Bogota, Columbia. Harvard Business School even has a case study on this project. It was a deeply inspiring meeting.
On June 18 2015, we were deeply encouraged by news that Wanda Group (one of the largest commercial developers in China or the world by now) announced that it had raised five billion yuan (RM3.4 billion) from investors online in just three days to fund the construction of three malls. Investors were able to take part in the projects by investing as little as 1,000 yuan. This is truly opening up access to real estate.
This news gave the team a big boost and reminded them that our idea wasn’t as crazy as it seemed.
ADDING BLOCKCHAIN TO THE MIX
Back in Singapore, we were hindered by archaic regulations that were meant for a different era. Early last year, out of exasperation with existing systems, we started to study the use of blockchain as a solution. We conceived the idea of creating digital tokens that are backed by real estate deals. Digital tokens, in our opinion, can be representations of proportionate ownerships of either debt instruments, a completed property or a development company’s share. Think of it as Bitcoin that are backed by real estate deals. The benefits of this are tremendous.
Firstly, digital tokens created on blockchains are technically very difficult to hack and all transactions and documents are transparent. Secondly, in transaction using digital tokens, especially those involving completed properties, a lot of middleman fees can be reduced. More importantly, such digital tokens can be traded much like shares are traded on stock exchanges. This makes real estate a liquid instrument.
However, adopting blockchains made our tasks even more difficult. Finding a lawyer who didn’t go “huh??” when we described what we wanted to do seemed improbable, finding a trustee or escrow agent who understood what was “startup that needs low-cost solution” seemed impossible and getting people who undersood what we were doing was like looking for T-Rex. But out of the blue, at end-2016, the Monetary Authority of Singapore announced that it was exploring the use of blockchains for inter-bank settlement. This has breathed new life into our movement and provided a whole new angle of legitimacy in what we are doing.
READY TO DIGITISE AND DEMOCRATISE REAL ESTATE
It has been a long journey with many frustrations but we have now created a platform named FundPlaces, which allows anyone to purchase digital tokens (marketed as Tiles) online. Tiles are digital representations of ownerships of real estate deals and its associated benefits. These deals could take the form of taking part in development projects as an equity partner that could make more than 15 per cent per year, to issuing loans to developers or jointly owning a house in Kensington for as little as US$1,000! We are now opening a whole new world of investment opportunities to people.
FundPlaces is building an ecosystem for people to access real estate investments and for small developers to create better quality places. We have not reached the starting point to democratise real estate by digitalisation. It’s a different kind of real estate journey but it should be quite a ride. We will share more experiences as we travel down this path.
Story courtesy of Henry Butcher Malaysia
Tan Kok Keong is CEO of REMS Advisors and co-founder of FundPlaces, an alternative investment platform for real estate. He has more than 20 years of experience in real estate, equities, funds and in the civil service.