Crowdfunding

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GUEST OBSERVER
In an Australian first, innovative research from the University of South Australia reveals that strength in numbers could hold the key for people wanting to enter Australia’s property market, with crowdfunding leading the way as an alternative option for new investors.
The groundbreaking study assesses individual investor motivation and appetite for crowdfunding and its potential as an alternative investment vehicle for entering Australia’s tenuous property market.
There’s a lot of debate about the current state of Australia’s housing market, and its inaccessibility, especially first-time homebuyers, who lack foundation capital get their first home.
As crowdfunding works by pooling capital from a large group of people to purchase a property, both the dollar investment and the risk, are spread across multiple players, with people able to make investments as small as $1,000.
This means people of all means and ages can try their hand at property investment, with their return being directly proportionate to their level of investment.
The research conducted by UniSA shows that property crowdfunding is a long-term investment strategy offering low to medium risks, and yielding similar low to medium returns. It attracts a mix of investor types, but has particular appeal to older Australians aged between 55 and 64 years (33 per cent of investors, representing the largest cohort). Only 4 per cent of the respondents were younger than 35 years.
There’s definitely an appetite among older investors for property crowdfunding, but we also know that millennials are using this type of investment vehicle to enter the property market.
While there are fewer millennials using crowdfunding for property investment, those that do, tend to invest greater funds than their older counterparts.
In contrast, older investors make up a greater percentage of the property crowdfunding market, but they tend to diversify their investment portfolios, preferring to hold higher percentages of their portfolios in cash and cash equivalent investment vehicles.
Property crowdfunding forms part of the online alternative finance market which has shown exponential growth over the past few years. According to the Cambridge Centre for Alternative Finance the Asia-Pacific Region alone (excluding mainland China) has shown a 313 per cent  increase to a volume of USD $1.2 billion in 2015 from USD $271.94 raised in 2014. 
Australia is second only to Japan as a participant in the Asia-Pacific alternative finance market.
This strong regional growth is a good indicator that we could expect similar growth patterns in property crowdfunding as alternative investment vehicle in the near future.
Property crowdfunding is still in its infancy in Australia, but as more people become aware and accepting of new digitalised investment platforms, we’re likely to see this market expand.
It is an investment strategy that has the potential to revolutionise the property market.
The results of this research are published in the Property Crowdfunding Australian Investor Perspectives 2016/17 report, developed in partnership with Domacom, one of the largest property crowdfunding platforms in Australia.
 
Dr Braam Lowies is a Senior Lecturer in Property, School of Commerce, University of South Australia and can be contacted <a href="https://www.unisa.edu.au" target="_blank">here</a>.
 
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Crowdfunding opens the door to Australia’s property market: Braam Lowies

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The DomaCom fractional property investing platform has moved to expand into the rural property sector.
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DomaCom's initial investment under its partnership with Cultivate Farms is Springview Eco Farm at Big Creek near Wagga Wagga.
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<div class="cq-article-content-media section">It is a 65 hectare <a href="https://domacom.com.au/public-crowdfunding-campaigns/rural-properties/next-generation-farmers/" target="_blank">pig farm</a>.</div>
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<div>The ASX-listed company recently secured a partnership with rural start-up, Cultivate Farms.</div>
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Under the arrangement, Cultivate Farms will source appropriate properties from farmers looking to retire and match these to aspiring or next generation farmers.
DomaCom will provide the investment capital through its crowdfunding platform.
The AFL great and farming sector advocate Kevin Sheedy has come on board as ambassador.
“We need to encourage the next generation to stay on the land and build a future for our country," Kevin Sheedy said.
"Through crowdfunding all Australians can now invest into farming families and regional Australia’s future.
Some of the footy’s greatest players grew up kicking a Sherrin on the dairy farms, market gardens and sheep farms out the back of nowhere.
"I struggle to see where the next generation of farmers, and therefore, AFL players will come from if it is financially impossible to own a farm.”
"The idea behind this project is to enable young farming families to get their foot on a property they can farm commercially, while at the same time enabling a retiring farmer to sell down or sell out in order to retire," said Warren Gibson, sales and marketing manager at DomaCom.
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"We are 50 per cent to closing our first property and through our partner, Sam Marwood of Cultivate Farms, have another 19 in the pipeline," he told The Australian Financial Review.
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Each farm will be held in a separate DomaCom sub-fund with investors receiving a share of the rent.
They can also benefit from any capital growth through the trading of units in the fund or when the property is eventually sold and the fund wound up.
Funds typically have a five-year term and a targeted gross return of 5 per cent. The minimum investment is $2500.
Springview Eco-Farm, located in the Eastern Riverina area of southern NSW, a 2.5 hour drive from Canberra, is run by vendor, Pennie Scott, who will retain some equity via the DomaCom property sub-fund units.
The farm has an indicative value of $800,000 with a target amount of $400,000 being raised. Its indicative capital growth is tipped as 6%* p.a. with a targeted rental return of 5%* p.a.
As DomaCom will be the landlord for Springview EcoFarm, a property manager will be appointed to manage the property including collecting the rent and future tenancy if or when required. 
The gross rent is targeted to be around 5% which should result in an approximate income return of 4% to investors after the 0.88% management fee, plus capital growth.
DomaCom is Australia's leading property crowdfunder. It allows anyone to <a href="https://www.urban.com.au/expert-insights/77398-crowdfunding-into-property" target="_blank">invest a little or a lot</a> in to property investment. 
They recently crowndfunded the <a href="https://www.urban.com.au/news/83331-domacom-crowdfunds-first-mortgage-backed-loan" target="_blank">first mortgage backed loan</a> for a residential property in Melbourne.
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DomaCom hire AFL legend Kevin Sheedy as ambassador for farm project

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In another crowdfunding first, DomaCom Australia announced that the crowdfunding campaign to fund a mortgage backed loan has been successfully completed. 
Newcastle based financial advice firm Shartru Wealth Management has used the DomaCom platform to acquire a $1.6 million residential property in Melbourne using both debt and equity.
A crowdfunding campaign was completed to raise around $682K for the equity component and another campaign was completed to raise the remaining $948K debt. 
In executing both sides of the transaction, Shartru have been able to satisfy the growth needs of their accumulation clients as well as the income needs of their retiree clients with an attractive net return of 5.06% in a low risk environment.
The loan is secured by a first mortgage security on residential property with a conservative LVR of around 60%. 
Shartru CEO, Rob Coyte, said it delivered a tax effective investment for our growth-oriented clients whilst also being able to deliver an attractive income investment to our retiree clients.
"An investment option returning 5.06% and secured by first registered mortgage with a low LVR is attractive in today’s environment where retirees are lucky to receive a 2.5% return from term deposits,” he said.
DomaCom CEO, Arthur Naoumidis explained that one of the great benefits of property investment is to be able to use internal gearing to deliver long term tax effective returns.
“We are pleased we can now facilitate debt arrangements via the DomaCom platform, offering expanded opportunities for investors”
“Advisers can now fund both the equity and the debt portions of a property investment which enables them to provide the appropriate investment outcomes for both accumulation and retiree clients”.
“We are now looking forward to accelerating our FUM with these new debt facilities, particularly in the SMSF space. SMSFs can have a precise asset allocation to real property via DomaCom, including debt, without the need for a Bare Trust, limited borrowing and with all the additional administration and cost involved”.
“With a managed fund like DomaCom and with access to debt, Advisers have an internal solution to help clients access investment property and fixed interest income in line with their portfolio strategy as part of the adviser’s fee for service.
"This is something DomaCom has been working towards for three years”.
To learn more about crowdfunding, visit <a href="https://www.domacom.com.au/" target="_blank">DomaCom here</a>.
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First mortgage backed loan crowdfunded by DomaCom

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Fractional property investment company DomaCom has announced that it has entered into an agreement to subscribe to the CoreLogic – Moody’s Analytics Australian Forecast Home Value Index.
This will allow DomaCom to create highly targeted research backed residential property investment strategies for Independent Financial Advisers (IFAs) and direct investors.
DomaCom will initially offer a Top Australian Residential Strategy drawing on the top sector in the CoreLogic – Moody’s Analytics Australian Forecast Home Value Index, as well as a Top Australian Cities Strategy with a choice of Sydney, Melbourne, Brisbane, Adelaide, Perth, Hobart or Darwin.
DomaCom CEO Arthur Naoumidis said the move is a step change in the evolution of their product.
“While independent financial advisers are typically at the core of most client’s investment decisions they have not previously been able to offer clients a comprehensive property investment solution, effectively excluding the world’s largest asset class from the discussion.
“This is a step change in the evolution of our product suite, providing a simple, comprehensive solution for investors incorporating every step in the process from research to execution with a very low investment threshold of $2,500.
“This puts the investor in the driver’s seat with the power to choose a residential property strategy backed by highly credible, independent research and underpinned by the confidence of having professional advice to execute that strategy through the selection of an appropriate property.”
DomaCom will engage professional property buyers’ advocates to shortlist suitable properties to acquire using the residential strategy campaigns selected by the investors. Investors will be able to open accounts on the platform and apply for units in the strategy of their choice.
Moody’s Analytics extensive economic forecasting expertise coupled with Corelogic’s historic index values offer sophisticated insights into the future trends of Australia’s residential property market and DomaCom is pleased to be able to offer investors access to these insights and the platform to act on them.
Highlights of the deal
• DomaCom signs agreement to subscribe to the 10-year CoreLogic – Moody’s Analytics Australian Forecast Home Value Index
• DomaCom will use the forecasts to create Residential Crowdfunding campaigns for each Australian capital city
• Paves the way for financial planners to access highly targeted residential property investment strategies for clients that leverage off institutional grade research
• Gen X/Y/Millennial Investors can participate in these crowd funding campaigns to save their housing deposit in the market they wish to live in.
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DomaCom subscribes to Moody’s Analytics property highlights index

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Crowdfunding is disrupting property investment by fractionalising the asset to make it easier for people to invest a bit or a lot in one or more properties of their choice, giving investors opportunities in any type of property anywhere in Australia.
Australia’s leading property crowdfunder, DomaCom, allows investors to contribute towards the purchase of a property asset of their choice.  This includes residential, commercial, retail, and industrial and thematic sectors such as agriculture, energy, affordable housing, student accommodation, land banking and social infrastructure, among others.
Sometimes called fractional investing, crowdfunding is a modern form of syndication that DomaCom have taken to another level.
The DomaCom model is an online platform in two parts; the first facilitates the investment application and a strict due diligence process to ensure that every property is fairly valued, legally entitled and of sound structure.
The second part is a legal structure that fractionalises the ownership via a unitised structure.
This structure is called a managed investment scheme (MIS). Each property acquired is held in a segregated sub-fund of the MIS in which investors receive units in proportion to the amount they invest.
Crowdfunding requires cash on deposit before a property can be selected as this determines how much is available. DomaCom have a number of residential strategy or thematic campaigns running at any one time that investors can choose from.
So who chooses property to crowdfund?
DomaCom is a platform for investors to use but the company does not choose specific properties. We select residential strategies from analysed research then ask property advisers to select assets based on that research. Thematic projects are usually partially completed with due diligence enabling them to be posted to the platform for investors to participate. Thematic projects usually have a longer sale process and therefore time to raise the necessary capital. Residential properties on the other hand come to market for 4 or 5 weeks so it is necessary to have cash on hand to act quickly when the properties are identified. 
Investing is the easy part, but how do investors exit?
An exit strategy is just as important as the investment. The DomaCom Fund generally has a 5 year term for residential properties thereby guaranteeing an exit for investors if they wish. Those who wish to retain the property can do so by buying out those who wish to exit. If they don’t the property is sold and the proceeds are distributed to investors. 
Just as the sharemarket enables online trading in company shares, DomaCom has created an online unit trading facility within the platform, complete with buy/sell and market depth screens to enable investors to trade their units at any time provided there is a buyer, just like the sharemarket. A third facility exists where unit holders can vote to wind up a sub-fund and sell the property at any time, provided 75% of unit holders vote to do so.
DomaCom have recently been active seeking to <a href="https://www.urban.com.au/news/77016-utilitas-group-working-with-domacom-to-raise-4-3-million-to-develop-casino-biohub-project" target="_blank">raise $4.3 million</a> working with Utilas Group to develop a BioHub project in Casino.
Landbanking has been popular venture too with funds being sought for near Sydney's second planned airport, with KSI Investments <a href="https://www.urban.com.au/expert-insights/building/77834-residential-landbanking-fund-opportunity-in-fringe-badgerys-creek-farm" target="_blank">acquiring over 11 acres</a> near Badgerys Creek. 
To learn more about crowdfunding, visit <a href="https://www.domacom.com.au/" target="_blank">DomaCom here</a>.
 
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What is crowdfunding into property?

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If finance is limiting your property investment ambitions or the idea of investing in a pooled managed fund where someone else chooses the asset doesn’t appeal, then why not create your own investment syndicate with family and friends and choose the property you want or engage a property adviser to help.  
The beauty of creating your own syndicate, or joining a crowdfunding campaign with like-minded investors in specific properties or projects that interest you, is that everyone can contribute as much as they can afford, or an amount that fits into your portfolio asset allocation strategy.  In this way no-one has to feel self-conscious as their name and the amount they contribute is private. Only the total amount is shown in the campaign as people contribute. 
By creating your own syndicate, you can set a target and invite people to participate. The entire process is done online.  You don’t even need to choose a property to get started, simply invite those you want to open an account, deposit the funds they want to invest and when your target is reached you can then go about selecting the property you want. Family members and friends is a good place to start.
It will pay to have a plan in place as to the type of property you’re looking for before launching a campaign. For example, “our objective is to acquire a residential property in one of Melbourne’s growth corridors”, or “to acquire agricultural farm land in the Western District of Victoria”. In this way you may avoid unnecessary disagreement on the type of property from the outset. 
You can literally choose from any property for sale in Australia; residential, commercial, industrial, rural farmland, or from a range of development projects that are listed on the website <a href="http://www.domacom.com.au" target="_blank">www.domacom.com.au</a>. 
DomaCom is an online property platform that lists crowdfunding campaigns for a range of properties. Some are set up as private campaigns by financial advisers exclusively for their clients or by individuals for family and friends to participate.  Some are set up as public campaigns that anyone can join.  
DomaCom also offer development projects in areas like renewable energy, affordable housing, hotels, aged care and child care centres to offer investors the ability to diversify their portfolio.
If you think going into an investment with family or friends might end in tears, the DomaCom Fund structure is an ASIC registered managed fund that handles the due diligence and ongoing management process, distributing rental income and providing tax, income and expense reports.
Having a Fund do this removes you from the process by making all the decisions and managing the investment on your behalf. You choose the property, DomaCom manage the acquisition process tenancy and ongoing management. 
Each property crowdfunded by DomaCom or acquired for private syndicates is segregated, meaning your investment is only in the specific property you have chosen. DomaCom calls these sub-funds and each sub-fund has a specific term to expiry so guaranteeing an exit strategy. For early exits (most are 5 years) DomaCom operate an online liquidity facility enabling you to sell your units to a buyer without affecting the other investors. 
Funds on deposit awaiting a suitable property attract an interest rate – currently 2.06%. 
After a property has been identified and acquired investors receive a proportional share of the rent and the ongoing capital value. No entry or exit fees.
Investing in property inevitably involves more than just the price of the property. There are acquisition and due diligence costs such as conveyancing, property inspection and a formal valuation – because you want to know that the seller has legal entitlement to sell and there are no encumbrances on the property. Also, you don’t want to buy a lemon or pay too much for it. On top of the due diligence of course there is stamp duty to be paid.
Once acquired you will want a tenant to pay rent so DomaCom arranges a property manager to do that and carry out regular inspections property.
Whilst care must be taken when buying a property and there are processes to observe a platform like DomaCom can take the worry and effort away.
General Advice Warning 
This information is general information only and does not take into account your personal objectives, financial situation or needs. Accordingly, before acting on the information provided you must consider the appropriateness of the information, in the light of your own objectives, financial situation or needs.  If you wish to acquire a financial product within the DomaCom Fund offering, you should first obtain a copy of, read and consider, the PDS before making any decision.  A copy of that PDS is available at on the DomaCom Ltd website, <a href="http://www.domacom.com.au" target="_blank">www.domacom.com.au</a> or by calling your financial adviser. We also recommend that you obtain legal and financial advice before investing with DomaCom.
Warren Gibson is the head of marketing and business development at DomaCom.
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