As the saying goes “No pain, no gain,” likewise for property investments, the riskier the asset, the higher the yield one can expect to receive. In Singapore’s context, the attractiveness of each asset classes can be viewed in the following hierarchy:
The net yields presented above are based on broad level trends in each market and will differ across specific assets from time to time. Nonetheless, it offers us an idea as to how risky these assets are viewed in the local property scene (Lower Risk = Lower Return, vice versa). Across the sectors, these yields have been shaped over time by factors including asset volatility and investor sentiments.
These yields also represent the typical net yield expectations of institutional investors such as REITs and private equity funds, where information on the cap rates being applied for property valuations are publicly available for the former. For reference, I have provided an excerpt below (boxed in red) from the CapitaMall Trust's quarterly presentation slides.
As seen in the example above, the initial yield/cap rate attached to individual properties vary depending on a combination of factors comprising location (I.e. economic attractiveness and proximity to population catchment and transport nodes) and nature of the development (mixed or single use).
Lastly, it is important to note that these are valuation based yields and it will certainly not represent the dividend you will get when buying into a REIT, which is determined by the REIT’s Distribution per Unit (DPU) and transacted Share Price. Nonetheless, the cap rates applied by the different REIT types (i.e. Starhill Global – Office/Retail, Cambridge Industrial – Industrial etc) will offer investors a benchmark on net income to expect when making a property purchase.
Do feel free to leave your comments below or drop us an email at [email protected]. To get started with your real estate investment for less than $1,000, sign up on FundArealty, check out our blog or follow us on Facebook or twitter @Fundarealty.
Another competitor in the real estate crowdfunding space - Crowdbaron in Hong Kong
In a sign that the crowdfunding movement is not stopping in the US alone, we've come across Crowdbaron, a real estate crowdfunding company based in Hong Kong.
It looks like crowdfunding is reaching the end of the innovators section in the Everett Roger's diffusion of innovation theory in chart above. While not entirely mainstream, the idea of crowdfunding is beginning to creep into public consciousness (much like bitcoin, and in the last week alone when it went viral).
Once it goes mainstream, every industry is going to have some form of crowdfunding. There's even crowdfunding for higher education now?? See also - univerisities need to get smart on crowdfunding, ufunded and commercialization of university research.
Crowdbaron is the first real estate crowdfunding company to set up base in Asia, and definitely not the last.
If the successful funding of a skyscraper in Colombia is anything to go by, the space is getting very crowded. At the same time, this is testament to the validity of the business model.
To get started with your real estate investment for less than $1,000, sign up on FundArealty, check out our blog or follow us on Facebook or twitter @Fundarealty.
Q: How is owning shares with FundArealty different from owning shares with a REIT?
A: The main difference is that owning shares with FundArealty gives you exposure only to properties and geographies of your choice and no others. Ownership of a REIT share generally gives you exposure to multiple properties, geographies and the overall stock market
Q: Who’s in charge of managing the property?
A: FundArealty is not in charge of managing the property. Rather, we appoint accredited and experienced property managers to handle the day-to-day affairs of the property, leaving us to spend time sourcing great deals in the market.
Q: How does an investment get listed on FundArealty?
A: FundArealty is constantly on the lookout for potential investment opportunities in South East Asia that offer great returns. Once a potential investment is spotted, due diligence is done with regards to the acquisition. The property gets listed if FundArealty feels the potential can be realized.
Q: How does FundArealty vet investments?
A: FundArealty performs a thorough research report on the property, looking at both macro and micro factors that are likely to have an impact on the investment return.
Q: Are there fees for investors?
A: Joining FundArealty and browsing the investment properties is free. There is however a fee associated with each investment that helps us cover administrative and miscellaneous costs
Q: Are the investments risky?
A: Yes. Similar to investing in the stock market, there is no guarantee of a full return of capital when you are investing in real estate. That said, real estate is different from owning a stock of a company which can go bankrupt. In extreme cases, investors in stocks can lose their entire capital. With real estate, as long as the building is still functional, there is a chance to get back a certain portion of the capital invested.
Q: Who owns the deed to the property?
A: Each property will be owned by a Limited Liability Company (LLC) validly registered with the Singapore Government, of which you will be an owner. When you invest in a property via FundArealty, you are purchasing shares in the LLC. These shares entitle These shares entitle you to a percentage share of ownership in the asset as well as profits generated from the Managers operation of the asset.
Q: If something happens to the property, can I end up owing more than I invested?
A: No, not as a law abiding member of the Limited Liability Company. The purpose of holding each investment offered on RealtyShares through a single asset Limited Liability Company is to limit your liability with respect to any particular investment to only the amount you invested. In this way, if there is a lawsuit involving the property or the owner of the property (the LLC), any legal and financial liability accruing to the LLC cannot pass through to you or your personal assets. You can only lose the amount you invested.
Q: How do I make money?
A: You make money primarily in by the appreciation of the property and regular dividends paid from rents that exceed expenses. Most property tends to increase in value over time and this is driven by general inflation (of which property is a good hedge against), as well as increasing demand for places to live, work and shop etc. A well operating real estate asset will take in more in rent than it takes to run the building. This excess money will distributed to the investors every quarter.
Q: Is there a minimum investment requirement?
A: The minimum is $100, but may change depending on the specific investment being offered.
Q: How will unexpected expenses be handled?
A: Each property will be initially funded with a reserve to protect against unexpected expenses. In addition, a portion of the rents will be set aside for unexpected expenses as will be called for in the business plan. If at the time of sale there are excess funds in the reserve pool, these will be distributed to the investors. Should the unexpected expenses ever surpass the reserves, the property will be subject to sale, unless more than 50% of the voting interest votes to fund the expenses with additional capital. If greater than 50% of the voting interest votes to invest additional capital instead of selling the property, no investor will be required to invest additional capital, but existing shares (i.e. the existing ownership interests) will be diluted to the extent additional capital is invested.
Q: How long is the investment for?
A: There are several types of real estate investments that call for different investment periods depending on the investment objectives. Ownership of a property in the long term (6-8 years) is the most secure and prudent way to invest in real estate as it offers an opportunity for capital appreciation and regular income. A “value-add” form of investment occurs when modest improvements is made to a property for greater income to be realized and which can then be sold as and when a potential gain is achievable. A “flip” is the most risky form of investment which occurs when a property is bought, fixed up immediately and sold for short term gain.
Q: What is a typical return that I can expect?
A: This depends very much on the overall real estate market, economic growth, sector popularity and spatial factors. On a very general basis, real estate investments across different sectors will yield cash returns of between 3-7% per annum, and expected appreciation of about 3-5% per annum.
Q: What kinds of real estate will I be able to purchase?
A: FundArealty offers the opportunity to own properties across the residential, retail, commercial and industrial sector in South East Asia.
Q: Can I sell shares early?
A: Investment in real estate is generally for longer periods due to the illiquidity of the market. There is no secondary market as of now but FundArealty will likely partner with a secondary market service provider in future to allow you and other investors to buy and sell shares in the secondary market.
What is crowdfunding all about? How is it applied to real estate?
Crowdfunding (alternately crowd financing, equity crowdfunding, or hyper funding) describes the collective effort of individuals who network and pool their money, usually via the internet. -Wikipedia-
At FundArealty, we believe that the phenomenon of crowdfunding is set to change the way real estate investment is done.
The traditional and time tested method to get exposure to the property market was usually to 'directly' purchase the property (direct purchase) or, in recent times, buy shares in a Real Estate Investment Trust (REIT).
Both methods have their advantages and drawbacks.
In the first method, fees such as property taxes, property management fees, leasing and rental fees need to be borne by the landlord. The upside is that direct property purchases gives one absolute control in managing the property, enhancement to it and the reaping of subsequent higher rents. In the second method, one buys a share of a REIT much like any other stock of a company. This gives the investor exposure to both the property as in method one, and the stock market, which might be both an advantage and disadvantage.
With real estate crowdfunding, the advantages of both methods mentioned above are meshed - Investors have control over their direct property purchase, and exposure to the stock market is limited. 'Dividends', in the form of a constant inflow of money (monthly rental paid by the tenant to the landlord) goes to the investor, who has part ownership in the physical property.
