Analysis: Crowdfunding of U.S. Real Estate Deals Gains Momentum

U.S. Real Estate Deals Gains Momentum

A tipping point may be near for U.S. investors seeking to benefit from crowdfunding in real estate, an industry that is a clear winner in the early stages of raising capital for small businesses over the Internet.

The amount of money raised, size of deals and the speed at which they occur – at times in a matter of hours – has steadily increased, suggesting crowdfunding for real estate is maturing.

Lifting a regulatory ban that bars ordinary investors from crowdfunding could greatly boost the volume of deals and capital raised for companies, while allowing investors to directly access annual returns of 7 to 12 percent, industry executives say.

Crowdfunding is the practice of financing a project or venture by raising small amounts of money from many people, typically through the Internet. Crowdfunding for real estate, despite rapid growth, is still a speck in the investing ecosystem, said Nav Athwal, founder and chief executive of San Francisco-based RealtyShares.

The company wants to make real estate investing as easy as investing in stocks, a common industry refrain, but a big hurdle at present is that only accredited investors – those with at least $1 million in assets excluding their home – can invest in the online marketplaces that connect borrowers with investors.

“We are very eager to one day be able to open our platform to anybody that wants to put $1,000 or a couple hundred bucks into real estate, because let’s face it, real estate is one of the best ways to build wealth and you shouldn’t have to have a certain net worth to invest in real estate,” Athwal said.

According to a posting on the website of the U.S. Office of Information and Regulatory Affairs, the implementation of Title III of the Jumpstart Our Business Startups Act – which would open crowdfunding to small investors – was tentatively expected this month.

THE RACE IS ON:-

Real estate has been the crowdfunding standout since the JOBS Act two years ago allowed an exemption to the ban on the public solicitation of private capital investments, said Crowdnetic Corp, a provider of crowdfunding data and research.

Over the two-year period ended September 2015, total capital raised for real estate development and investment in the United States through crowdfunding was $208.3 million. That represents almost a quarter of the $870 million committed since September 2013 through the 506(c) clause of the JOBS Act, Crowdnetic said in a report citing data from 18 leading intermediaries, or online platforms for crowdfunding.

The market is bigger, though, as RealtyShares has originated more than $100 million in loans via the 506(b) clause, which prohibits marketing securities by solicitation, while 506(c) allows it if all investors are accredited.

A race is now on among the online marketplaces to better vet the companies seeking capital to reduce investor risk. RealtyShares receives almost 1,000 applications a month, but puts only 5 percent onto its platforms, Athwal said.

Peer Street, a real estate platform that has been operating in beta mode since January, launched its site on Monday, hoping to tap existing loans from private money lenders. Historically it might take $100,000 to $250,000 to get into a single loan or pool of loans, said Brew Johnson, a co-founder of Peer Street.

“Now you can take that same amount of money and create a diversified portfolio across many loans to reduce the risk,” he said.

FOLLOW THE SMART MONEY:-

The real estate crowdfunding industry, as measured in total volume and number of deals, is poised for possible annual growth of 25 percent or more, said Luan Cox, president and chief executive of Crowdnetic.

An announcement two weeks ago that venture capital firm CSC Upshot raised $400 million to invest in startups on AngelList suggests a tipping point in crowdfunding, as it will allow small investors to mingle with angel investors, or those who back small startups or entrepreneurs, she said.

The deal is “a very public and substantive nod to the market and a signal for retail investors to follow the ‘smart money,'” Cox said.

However, most people still do not know what crowdfunding is, and those who do fail to understand how to invest through this medium, said Mark Robertson of Salisbury, North Carolina, who launched a website, CrowdDD.com, this year to facilitate the discussion of crowdfunding opportunities among investors.

Robertson said he can now invest in real estate deals that in the past required knowing the right people in a syndication.

Over the last decade Robertson might have learned of two or three investment opportunities, but crowdfunding has “democratized” investing and increased transparency.

“With crowdfunding I’ve literally looked at over 500 deals across the country in different asset classes,” he said. “Instead of money sitting in the bank earning half of 1 percent a year, I can now earn 10 to 12 percent a year.”

China’s Q3 GDP up 6.9% y-o-y Compared to Forecast of 6.8%

China’s economy grew at its slowest pace since the global financial crisis in the third quarter, reviving expectations of further stimulus to avert a stalling of the world’s growth engine.

The world’s second largest economy expanded by 6.9 percent in the July-September quarter, slowing from a 7 percent increase in the previous quarter. The numbers were still better than market expectations.

Analysts polled by Reuters had forecast gross domestic product (GDP) in the world’s second-largest economy would grow 6.8 percent in July-September period from a year earlier.

“As growth slows and risk of deflation heightens, we reiterate that China needs to cut reserve requirement ratio (RRR) by another 50bps in Q4,” ANZ economists Li-gang Liu and Louis Lam, said in a note. A basis point is 1/100th of a percentage point.

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“Looming deflation risk suggests that the People’s Bank of China will also adjust the benchmark interest rates, especially lending rate, down further.”

Growth was up 1.8 percent quarter-on-quarter in Q3, China’s National Bureau of Statistics (NBS) said on Monday. This compared to a Reuters forecast of 1.7 percent, down from a revised 1.8 percent in the second quarter.

Bureau spokesman Sheng Laiyun told Reuters that China faced increased downward pressure on exports, and the government needed time to absorb excess capacity in traditional industries.

The survey-based unemployment rate in China was around 5.2 percent in September, Sheng added.

The government has set its annual economic growth target at “around 7 percent” for 2015, but at the weekend Chinese Premier Li Keqiang admitted that with the global economic recovery losing steam, hitting such a target was “not easy.”

Additional data released Monday showed that fixed-asset investment (FIA) growth eased to 10.3 percent year-on-year in the Jan-September period, missing market expectations. Analysts polled by Reuters predicted investment growth would come in at 10.8 percent, compared with 10.9 percent posted the prior month.

Industrial output growth also cooled more than expected to 5.7 percent, disappointing analysts who expected it to rise 6 percent on an annual basis after a rise of 6.1 percent the prior month.

Retail sales quickened to 10.9 percent. Analysts forecast they would rise 10.8 percent on an annual basis after a rise of 10.8 percent the prior month.

Asian shares outside Japan turned positive after the GDP beat. TheShanghai Composite rebounded 0.5 percent, while the CSI300 Index of the largest listed companies in Shanghai and Shenzhen advanced 0.7 percent and the smaller Shenzhen Composite moved up 0.4 percent.

Australia’s S&P ASX 200 index erased losses to edge up above the flatline. The Australian dollar also got an upward lift, traded at $0.7259 versus the greenback, compared with $0.7241 prior to the data releases.

South Korea’s Kospi also moved into the flat-zone.

Some commentators were skeptical of the numbers produced by China’s statistics bureau, however.

“Quelle surprise,” Dow Jones quoted Michael Every, Asia head of financial markets research at Rabobank, as saying. “That 6.9 percent figure looks very convenient.”

China’s stock market went into meltdown between June and August, triggered by a host of factors, including an unwinding of margin trades and concerns over lofty valuations. This, analysts said, would likely have reduced the financial sector’s contribution to third-quarter growth.

Aside from financial sector woes, a sluggish real estate market continues to weigh on the economy. Real estate is linked to dozens of other key sectors, including steel and cement, that are already grappling with oversupply.

While property sales and prices have been on the rise in response to increasingly accommodative housing policy, housing construction is still in the doldrums. Given the large inventory of unsold housing, strong housing sales momentum for a sustained period was needed before housing construction could recover meaningfully, according to Oxford Economics.

On the bright side, consumption was holding up on the back of robust wage growth, helping to cushion the blow from weakness elsewhere in the economy, economists said.

Melbourne Looks Set to Outshine Sydney on the Property Ladder

IT’S the turf war that struggling househunters in Victoria don’t want Melbourne to win:-

Generations of friendly Sydney versus Melbourne rivalry has lead to heated banter about the “best” coffee, but this time it just got serious — whose property will be the priciest?

SQM’s 2016 Housing Boom and Bust Report out today suggests that while the general Australian property market is about to hit a go-slow phase, Melbourne looks set to outshine Sydney when it comes to price growth.

“We believe that Melbourne will be the outperformer of the year followed by the Gold Coast and Hobart. Each of these respective cities are benefiting from the lower Australian dollar,” said Louis Christopher, managing director of SQM Research.

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Despite predictions last week that Australian property prices were set to slump by 7.5 per cent, SQM’s 2016 Housing Boom and Bust Report forecasts that average capital city dwelling prices will rise between 3 per cent and 8 per cent next year. That’s a slowdown from the more substantial 9.8 per cent rise recorded for the 12 months to June 2015.

Melbourne homeowners could be laughing as property prices rise.Source:Supplied

Mr Christopher said it is “highly unlikely” that an across the board price correction will occur next year. He based this on the fact the Australian dollar is “likely to stay at current low levels, or even fall” as well as the low interest rate environment.

“We forecast the national residential housing market will slowdown in 2016 predominantly as a result of a slowing Sydney housing market. However we do not believe the market will record a fall in prices for the year,” Mr Christopher said.

“There might be one quarter, perhaps, where Sydney records a marginal decline. But that should be it,” he said.

Next year SQM forecasts that the harbour city will see property prices rise between 4 per cent and 9 per cent — a modest movement considering prices there jumped a whopping 18.9 per cent in the year to June 2015.

So Sydney’s slowdown makes way for Melbourne’s market to take the lead. The report tips a rise in Melbourne dwelling prices of between 8 per cent to 13 per cent.

The overall go slow of the Australian property market is attributed to an ongoing housing market correction in the resources exposed capital cities of Perth and Darwin and the APRA actions (which were announced earlier this year) of restricting credit growth.

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With the Aussie dollar at current low levels, there’s a buffer for the economy and the housing marketSource:News Limited

He said the big worry for the Australian housing market over the medium to long term is the looming threat of global deflation.

“This is quite a danger to our markets here given the level of debt in the housing market right now, which we note has risen again against incomes over the course of 2014/2015 to be at all-time highs. This threat became all too apparent this week when Westpac lifted their variable home loan lending rate. In a global deflationary environment the risk premiums banks would require on their lending book would most likely skyrocket due to the greater threat of defaults and falling asset prices,” he said.

“For 2016 we believe the RBA has some ammunition to offset this looming risk however we are concerned of their ability to handle the issue over the medium to long term.”

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Finally, could Australian rents be getting cheaper? Picture: Phil WilliamsSource:News Corp Australia

But all this could mean some relief for renters.

“This year, it has become quite apparent that rents have slowed, possibly as a result of the lower inflationary environment. We believe there is evidence that rents will slow further in 2016 with our average capital city forecast to be 0 per cent to 3 per cent. Perth and Darwin will experience the largest falls in rents however this is just part of an ongoing trend currently being recorded in these two cities,” he said.

But renters in Hobart, Melbourne or on the Gold Coast will have to brace — these areas look set to record the strongest rental increases.

“We believe the threat of a massive oversupply in Melbourne has been overstated. Indeed our vacancy rates for that city have fallen for the year as population growth and housing formation have quickly absorbed the new stock being completed,” he said.

Britney Spears’s Latest Hit Is $7.4 Million of Real Estate Gold

Oops, Britney did it again! The pop star, who has hopped from house to house around LA over the last decade, has reportedly just closed on a sprawling Italian villain Thousand Oaks. The five-bedroom, seven-and-a-half-bath main residence is over 13,000 square-feet and sits on 20 picturesque acres. It comes equipped with every possible amenity, from a golf course to tennis courts to a massive wine cellar. With its resort-like vibe, it’s easy to mistake the private home for a five-star hotel.

The Femme Fatale singer dropped a cool $7.4 million on the mansion — small change for Brit, who’s now making a reported $475,000 a show during her Las Vegas residency.

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On the real estate circuit, the purchase is being considered quite a steal since the mansion was originally listed for several million more and has a current appraisal value of $13.4 million on Zillow. So how did Britney get such a great deal? It could be because she purchased it from the bank; Trulia lists the home’s prior status as foreclosed.

While we may never know how Ms. Spears negotiated such a fantastic price, we can confidentially say that she and sons Sean Preston and Jayden will have a wonderful time living here.

Dubai Land Department Unveils Latest Real Estate Smart Technology at GITEX 2015

Dubai, UAE, October 17, 2015: Visitors to the thirty-fifth edition of GITEX Technology Week had the opportunity today to familiarise themselves with a unique set of digital real estate solutions which have been developed by Dubai Land Department ( DLD ).

Attendees who visit the government department’s stand at the exhibition, which is currently underway at the Dubai World Trade Centre, are able to see the latest achievements developed by DLD , and transformed all operations and the way that stakeholders are interacting with the organisation.

DLD ‘s participation at Gitex aimed to confirms our commitment to follow the latest rapid technological developments witnessed by the world around us. Our latest smart services emphasize on our success in achieving unprecedented solutions in this area, which helped us to win important international awards, as we have reached the desired satisfaction from our customers who are happy the convenient services that meet their needs and in line with their expectations,” said HE Sultan Butti Bin Mejren, Director General of DLD .

Investment Map portal represents the intelligent real estate market using Internet browsers and smart devices, the portal was launched by Real Estate Investment Management and Promotion Center, the investment arm of Dubai Land Department to attract major investors for off-plan available projects. It carries an integrated set of applications and Dubai real estate best practices in addition to Google’s search tool that enable all investors and businessmen to access many investment project opportunities through their smart devices that will help them ease the decision making process and to transact online using secure government portal.

DLD is proud of Dubai Real Estate Market (eMart), the online portal; specially designed for real estate professionals to list their properties for sale and rent in Dubai. The system provides public with number of e-services allowing them to search for properties listed for sale or rent, communicate with landlords, Brokers and management companies and also complete sale transactions online.

DLD will be also showcasing the Registration Trustees application, the service that authorizes specialized and certified third-party offices by Dubai Land Department to register the key real estate procedures in sites spread all over Dubai and operate outside of regular working hours of the department. The service aims to facilitate and speed up the process of procedures registration and avoid the wait time required for investors to complete their transactions in DLD . As well as the Rental Dispute Center “RDC” application is an online rental disputes litigation system that provides judicial services to deal with rental disputes and settle legal issues in a quick, transparent and professional manner. RDC application allows the public to follow-up on the status of their disputes and communicates with the committees whenever needed.

DLD will also showcase “Dubai Brokers” application, the smart application providing accurate information about Dubai Brokers and Real Estate Agents Offices that are licensed and approved byDLD . As for the latest application “Mashrooi” (My Project) the smart application designed for the real estate developers and its investors by providing accurate information about the master developer, sub developer, projects and escrow account information from DLD robust property management system.

DLD ‘s Digital Property application and its many other smart solutions and e-services can be seen at GITEX at Dubai Smart Government Stand which is located in Sheikh Saeed Hall number (3). GITEX 2014 continues until October 22.

PROPERTY MARKET HOPES TO CASH IN ON RBI RATE CUT

PROPERTY MARKET HOPES TO CASH IN ON RBI RATE CUT:-

Reserve Bank of India (RBI) announcing a drop in repo rate has given relief not only to loan seekers but also to the real estate sector. Builders are now hoping the real estate market in Bengaluru will pick up henceforth. Post-Ashadha, the real estate market has not picked up as expected, forcing builders not to increase prices. The industry says the move was expected as early as June this year, and though late, the decision will positively affect the industry.

Suresh Hari of CREDAI, Bengaluru, said, “Reduction in repo rate was expected much earlier. It should have been done at least by June. Even though it has come late, the time is very favourable. As the festive season is arriving and Ashadha has just got over, people are expected to invest now.” Hari says to promote investment further, builders will not increase prices.

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He added, “Builders are giving a lot of discounts to promote investments. Once the repo rate reduces, the markets are expected to remain stable for the next one year. This will lead to reduction in payment period, reduction in outflow as well as more eligibility for customers. We are sure people will invest now.”
It is believed that the maximum advantage will be for customers looking for a dwelling unit at a range of up to Rs.80 lakh. Some real estate industry members also believe that a few more repo cuts should follow. Farook Mahmood, chairman and managing director, Silverline Group, says the only way to increase investment is through repo rate cuts.
Mahmood, who has more than 20 years’ experience in the Bengaluru real estate market, said, “People are expecting costs to reduce. However, that is not possible as the prices of raw materials have gone up drastically. Each and every material has increased in cost. Hence, rates are never going to come down. In such a scenario, the repo rate is the best way to benefit customers.”

As per various real estate reports, from January to June

this year, Bengaluru recorded the highest number of new real estate project launches in the country. However, the city also recorded a 40 per cent drop year on year. In the last one quarter, there were 7,000 new launches in the city. However, there was a 14 per cent drop in new homes sales in the second quarter of this year. The unsold inventory in Bengaluru until August was 1,05,281 units, which is the highest in the country.

Satish BN, executive director, Knight Frank, said, “Rate correction is a sensitive thing for developers to do. Developers can re-look at rates depending on the position of the flat and competition around. Wherever possible, if they make reductions, the industry will pick up faster.”

On The Edge: Are Indian Real Estate Heading For a 50% Crash in Prices?

Are Indian Real Estate Heading For a 50% Crash in Prices

We all know that real estate in India is terribly expensive and is now selling at prices making it practically unaffordable for almost everybody who wants to buy a home to live in. But how expensive is expensive? This is an important question that needs to be answered.

One way of looking at this problem is through the rental yield available on houses at any point of time. Rental yield is the annual return that can be earned by renting out a house. The number is obtained by dividing the annual rent of the house by its market price.

And what is the rental yield in India? As Ashwinder Raj Singh is CEO – Residential Services of JLL India points out in a June 2015 column in The Indian Express: “Rental yields vary across the globe, but an average of 2 per cent of rental yield is considered a good deal for residential properties in India.”

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Singh goes on to write: “In India, the cities which currently offer a higher rental yield are Mumbai, Pune, NCR-Delhi, Bengaluru, Kolkata, Chennai, Hyderabad, Ahmedabad. All these cities offer a rental yield of 2 per cent and above, and you can be assured that the average is not going down anytime soon. Investing in these cities will offer you the maximum returns on investment in properties bought for generating rental income.”

Why would anyone invest for a return of 2 percent is a question that only perhaps Singh can answer? And at 2 percent the rental yield is already very low. We will leave this argument for another day.

Hence, we have an expert telling us that an average rental yield of 2 percent is considered good in India at this point of time. But is it enough? In a recent research report titled Real Estate: The Unwind and its Side Effects analysts Saurabh Mukherjea and Sumit Shekhar of Ambit provide the answer.

As they write: “In a fairly-priced real estate market, the rental yield tends to be somewhere close to the cost of borrowing. Instead, Mumbai has a rental yield of close to 2% (this is gross of tax and maintenance charges) whilst the lending rate hovers around 10%. The difference between lending rates and rental yields is one of the highest.”

As the above chart (Exhibit 11) shows us, even China which has had a huge real estate bubble going has a rental yield better than that of India. In fact as the next chart (Exhibit 12) shows the difference between the interest rate at which money can be borrowed and the rental yield is one of the highest in the world, in India. At this point of time a home loan can be borrowed at 10 percent whereas the rental yield is 2 percent, a difference of 8 percent.

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What does this tell us? The rental yield as explained above has two inputs: the annual rent and the market price of the house. A rental yield of 2 percent means that the market price of homes in India has risen at a much faster rate than the rents.

And why is this the case? As Mukhejea and Shekhar write: “Rental yields in property markets in India have remained extremely low as compared to its other Asian peers thereby pointing to the over-valuation of this asset class mainly because it can absorb black money.”

The rental yield cannot continue to remain out of whack. For it to come to the right level, the rents need to rise or the market prices of homes need to fall. Given the surfeit of homes available right now, it is highly unlikely that rents will rise. The chances of property prices falling are significantly higher.