Dubai: It’s already available for businesses in tech or in web retailing, but crowdfunding could soon make a mark in the local real estate space as well. Guernsey-registered Mayfair & Morgan Ltd (M&M) confirmed that initial talks have been held with a Dubai-based developer to explore the possibility of an online fund sourcing platform.
“The developer has a funding requirement of $6 million [Dh22 million] for one of his projects, and together we are reviewing whether crowdsourcing is a viable option to pull in that level of investments,” said Paul Skillen, CEO of M&M, which has offices in Dubai and London. “In the US and UK, crowdfunding related to real estate have been growing exponentially and at some point will make its mark in the UAE.”
Local and regional markets have been witness to heightened crowdfunding activity, whereby businesses eschew traditional resources such as banks or private equity to pitch their credentials to a wider audience. All of the transactions are done over the web, and the “investor” gets to acquire a stake in the venture at a relatively smaller price. For the business, success would be defined as being able to tap into a sizable “crowd” of investors and get the funds that it had its eyes on.
M&M, on its part, is also testing the extent of latent interest through inviting investors to get on board a “special purpose vehicle” (SPV) which holds stakes in a portfolio of fully-let residential properties well outside of London. Investment packages featuring five properties each were opened up to investors this week, with a minimum requirement of £1,000 per investor and in multiples thereof. Once the fund limit for each SPV is reached, an investor gets a share equivalent to a stake in all five properties.
The funds would have a lock-in of five years and with the promise of a 5 per cent yearly dividend and an annual value growth of 8-10 per cent for the individual properties. At the end of five years, the SPV will sell the assets and return the invested capital to investors, along with the upside of the resale value.
“Crowdfunding does not recognise economic or geographic boundaries,” said John Maguire, a Hong Kong based investor. “Essentially, the interests of the crowdfunder, as co-investors in this project, are aligned with our own (as promoter) in that we make money only if all the investors make money first. We are structuring the 2 million pound plus property investment and opted to crowdfund a significant portion of the investment rather than use banks.”
The promoters hold up to 25 per cent as equity in these packages. “None of the properties carry any debt and they are fully let, ensuring steady income over the duration of the special purpose vehicle,” said Skillen.
“After the 2007 crisis, banks were no longer willing to hold properties in their books and were selling them off. That was how we built up this portfolio of assets and we are managing them. The fact that as the original promoters we retain 25 per cent is crucial from the regulatory point of view.”
But regulatory oversight of the crowdfunding industry and its spin-offs such as peer-to-peer transactions are being scaled up. “M&M is registered with Guernsey Financial Services Authority and that comes with all the attendant requirements that a business has to adhere to,” said Skillen. “What is being offered via the SPVs stands up to all the international laws governing any transaction.”
