Guest blog: Siddiq Farid co-founder of Smart Crowd talks about real estate crowdfunding in the UAE
Today, Siddiq Farid, CEO and co-founder of Smart Crowd shares with us a few insights about how real estate crowdfunding can be something investors can use to buy properties in Dubai. Let's take a look at what he had to share.
REal estate CROWDFUNDING IN DUBAI
Crowdfunding in the UAE is still a relatively new concept here. What many of us don't know is that crowdfunding can be used for buying real estate. Smart Crowd is proudly spearheading the concept of real estate crowdfunding in the UAE. For those who don't know, real estate crowdfunding is a fast and convenient way to invest in a property without having large wealth. The costs of property investment are shared with a group of like-minded people, for as little as a few thousand dirhams. In a way, we are democratising real estate investments via crowdfunding.
At present, only the Dubai Financial Services Authority (DFSA) has regulations concerning crowdfunding in the UAE, and these are focused on debt and equity crowdfunding. There are two other regulated crowdfunding companies in Dubai that are operating here - Beehive (debt), and Eureka (equity). Smart Crowd is unique from these because it establishes an asset-backed crowdfunding platform, that offers a much lower risk profile than investing in unsecured debt and untradeable equity in private companies.
BENEFITS OF REAL ESTATE CROWDFUNDING IN THE UAE
Crowdfunding for real estate can offer many benefits to every person involved. It gives them a chance to invest in something they would not be able to on their own. A key advantage is the low-cost involved and division of risk. Smart Crowd’s business model allows people to pool in an affordable amount of investment together with others, to generate the buying power only the wealthy are known to have. For the average person, this concept works very well since a large share is not being allocated into one investment, making it easier to shoulder risk in the current market situation.
Another benefit that can be brought about by real estate crowdfunding is the diversification and distribution of potential investments. In this mechanism, the legwork’s already been done as experts have researched the markets and worked out where the best possible investments lie. With this information, investors can invest in multiple properties in different areas, and different types of developments. By dividing investments into a number of smaller, more manageable pockets, investors receive the best chance to for their wealth to grow. It's time-saving, it's convenient, mitigates risk and is especially helpful for first-time investors, who do not have the time, knowledge or access to resources to properly investigate the real estate market to find the best investment opportunity.
Things to consider when crowdfunding for properties
The key thing every investor must keep in mind is the amount of investment that should be put in. In terms of debt crowdfunding, investors can expect to see a return on their investment (ROI) in anywhere between six months to two years. In equity, the ROI is unknown, however, the ROI in real estate crowdfunding can be instant through regular dividend income from rental income and from capital gains, when the property is sold at the end of the term which is typically in five years.
However, before going ahead with anything, we recommend doing your homework to ensure you are investing through a reputable and regulated platform that provides you full protection and complete transparency. Ensure you’re not exposed to the platform’s operational risk. Is your investment ring-fenced and protected against fraud? Before considering any investment, make sure you understand how much due diligence the platform does itself. You should raise serious questions about anything that seems unclear.
Real Estate crowdfunding vs other funding methods
Now you may be wondering why crowdfunding for real estate is a better alternative to getting a loan. Well, simply put, it’s cheaper, faster and more flexible. It’s a shorter term, faster return on an investment. Especially in the real estate market in the UAE, a loan to purchase a house is often contingent on earnings and a large deposit. With a loan, there’s a great onus on the borrower to prove financial income and security, not to mention interest payments on repaying the amount borrowed. Most of us can find AED 5,000 to invest in a property, and simply wait a short while before gaining returns.
The best part about crowdfunding for real estate with Smart Crowd is that it is open to all – especially given our low investment starting point. You can invest with a small amount in one small project, or spread hundreds or thousands of dirhams across multiple projects. We welcome investors from all strata of society, from individuals looking to get a small return on a small investment, to large financiers looking to use crowdfunding as a way to rapidly and easily develop a diverse property portfolio. People with disposable income and savings that are willing to look for alternative methods to enhance their returns will find a perfect opportunity in crowdfunding for properties in Dubai.
The FUTURE of crowdfunding in Dubai for properties
Crowdfunding has been growing exponentially all over the world. The World Bank estimates that by 2025 the global crowdfunding industry will be worth upwards of $95B, with real estate being the fastest-growing segment currently. The UAE real estate market is also expecting to see a boom in the coming years due to the introduction of the new laws and the influx of properties being handed over before the Expo 2020.
The new five-year retiree visa will see the rise of retirees using crowdfunding for properties, as it allows them to use their retirement funds to provide them with an option to retire here. The new 10-year residency visa being offered is also sure to bring professionals and investors to the UAE while increasing the interest in longer-term property investment. It is likely that the effect of this may push investors to the real estate crowdfunding community in Dubai and further promote the UAE crowdfunding scene.
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