While investments in real estate will continue to be a main portfolio asset, the trend is shifting towards indirect property investment where multiple stakeholders own a partial stake in an asset.
Whether through an established fund or through the more recent crowdfunding platforms, such real estate investment vehicles are rapidly gaining traction despite some barriers, panellists at AB Money Forum’s on Monday agreed.
“One of the biggest shifts we’re seeing globally and here [in Dubai] too is the amount of capital that is looking at indirect real estate and here I mean buying in a real estate instrument, not investing in a villa or apartment,” said Simon Townsend, CEO, Ellington Capital, a real estate investment management company.
Because there is a “mystique” around real estate funds and trusts, the perception historically has been that they are only affordable to major investment banks but the reality is they are available to individual investors as well, explained Townsend.
“This shift is taking time because of legislation and transparency issues rather than an actual concern about the asset class. I think as we move forwards, we’ll start talking less and less about direct investment and more about indirect estate,” he said.
The entry point to Ellington Capital’s fund is $500,000, but for smaller ticket investors, Townsend said “many financial institutions create vehicles that invest in funds like ours so you potentially still get the 12 percent return over the six years, but you do it as a collective of investors coming in as a shareholder.”
Simon Townsend, CEO, Ellington Capital
For investors with a much lower ticket, real estate crowdfunding digital platforms may be the answer, said Lynette Abad Sacchetto, director, Research & Data, Property Finder.
SmartCrowd pioneered property investment platforms in the UAE and in March this year recorded a 400 percent growth in the two years following its regulation from DIFC. A similar platform, Stake, launched in January, on Tuesday announced it had raised $4 million in seed funding to fuel its expansion.
“We started to see become popular to say by the end of 2019. It’s basically a group of people who get together and buy one property or percentage of a property. It is fully regulated by DIFC and done in a very clean way,” said Sacchetto.
“They find a property that has very good returns, around 80 percent net yield, typically in popular areas because the point is for them to lease it out after the property is purchased or maybe it’s currently being leased,” she added.
Lynette Abad Sacchetto, director, Research & Data, Property Finder
The way these property crowdfunding platforms typically operate, explained Sacchetto, is that they create a Special Purpose Vehicle (SPV) – a type of company that can be set up to hold a property – for the property.
“When they want to exit, they can sell their shares back to the company who’s running the crowd funding platform or to the other people who are part of the SPV and typically their fold is about five years,” explained Sacchetto.
Follow us on
