Unregulated ‘crowdfunding’ a risky property play

A recent article on the ABC website – “Share by share: Crowdfunding offers new opportunities for Australian property investors” highlights some of the new alternative ways to invest in property in Australia. Certainly the opportunity to invest in a ‘crowdfunding’ venture is an attractive one for active investors with an affinity for residential property, particularly with the ability to avoid taking on a new mortgage, raising yet another deposit, perhaps accessing equity from your existing home and of course dealing with both real-estate sales agents, and property managers.

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A further report from the University of SA has revealed that crowdfunding the purchase of property and crowdfunding in development projects is growing in popularity. The report notes that the investment method “has not been extensively researched, especially not in an Australian context;” however, more than 90% of respondents indicated they had “some idea about property crowdfunding,” or were “well informed about it”.

However, not all ‘crowd funding’ is equal. With many unregulated offers out there, investors should ensure they do their research before considering investing via this growing market as operators continually bring new offers to market.

Key things to consider and look for before dipping your toe in the new world of ‘property crowdfunding’ are as follows:

  • Is the investment in an ASIC regulated environment?
  • Is there a forecast return, and is it quoted on a per annum basis?
  • What is the investment timeframe?
  • If the underlying asset is a direct property purchase, is there a secondary market where you are able to sell/trade your share?
  • Are you investing with a proven property expert, or instead with a technology entrepreneur?

There are many new options for Australian property investors offering the ability to buy a small share in a direct existing property, investing in various development projects and everything in between. Unfortunately many of these opportunities are in an unregulated environment offering investors limited protection and often quoting high level over all percentage returns without declaring the more relevant percentage per annum return on investment.