One of the largest investible asset classes in the world is real estate but it is not accessible by many.
May Khizam, co-founder, SMARTInvest Real Estate by The Grid, recently interviewed Siddiq Farid, CEO, Smart Crowd, about property crowdfunding in the GCC.
Q: Whilst property is one of the fastest growing segments in the crowdfunding space, it is still quite nascent, particularly in the GCC. Can you explain the trend and why do you think the region is ripe for it?
A: There was some recent research from World Economic Forum that depicted income inequality, particularly pronounced here in the GCC region, where top ten percent own 65% of the wealth and the bottom 50% only own 9%. That’s a big disparity that is getting greater day-by-day.
Q: To what do you attribute the disparity?
A: The wealthy are growing their wealth twice as fast as less affluent people. One reason is that they have the ability to put their capital to work in safer investments like real estate, which allows them to take risks on their other capital elsewhere. In juxtaposition to this, as less affluent people, we find it difficult to park our capital in a place that provides a secondary source of income with a safety net to allow us to go take some higher risk options in other asset classes to try to move up that property ladder. There are a lack of opportunities to put our capital to work so we end up taking that risk unnecessarily without having any sort of safety net.
A: What is your personal experience of real estate investment and risk?
Q: A couple of years ago. I wanted to invest in real estate but anything that I found attractive was un-affordable and did not want to go down the financing route. My only option was either go through indirect ways of investing in publicly-traded funds or have zero exposure to real estate. I wanted to avoid taking a large chunk of my capital and putting it into one asset and increase my concentration risk. Or worse still, get leveraged and put all my money into one asset and be levered, where I am not only exposed to real estate risk but also exposed to interest rate risk and a whole bunch of other things.
I could go buy an off-plan but that would have added risk to my risk exposure when I just wanted real estate exposure. That’s how the Smart Crowd idea came about.
Q: Real estate is still said to be one the safest asset classes but it is difficult for a person who relies solely on his income to take a punt and buy an apartment, for instance. That’s a big risk.
A: Yes, that’s where crowdfunding is a good alternative for people who want to put their capital to work in safer investment products. It gives people access to the market and also allows them to sustain that investment. You need to be able to ride out the market. If you cannot, you get yourself into trouble at the worst possible time and will be forced to take losses.
One way to provide that access is fractionalizing or breaking assets into smaller chunks. If a group of people have the ability to allocate AED 100,000 each to the real estate market, for instance, then you have AED 2,000,000 to invest, which is a sizeable amount that allows you market access, the ability to invest what you can afford and participate in the returns generated.
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