Crowdfunding for the real estate sector: a viable option?

Real estate is one of the most flourishing sectors in which a person can invest their money. Not only is it flourishing, it also offers security. 70% of the wealth of Indian households are locked as real estate. It is a common saying that the price of land can only increase and never decrease. People naturally invest their money in real estate.

There is a problem with the way most people invest in real estate. In order to invest money in real estate you need to have a great deal of knowledge about the locality as well as about the market. As a result, most middle class Indians end up investing in the same area they live in. This stunts the potential for investment that real estate offers.

As things stand now, only high end investors have access to investment in far flung properties on the international market. Real estate is a growing area and the middle class has a lot of capital in their hands. Therefore, in the recent past, the web economy has tried to entice these investors in various ways. A website called SmartOwner allows you to access opportunities to invest in all over the world. The same website negotiates for you and gets you deep discounts on your investment so that you can make a large profit when the bond matures. SmartOwner has opened up opportunities that crowdfunding can capitalize on.

Crowdfunding in India still involves an illegal equity crowdfunding sector. Without this, real estate investment still remains the prerogative of the select few. But if the equity crowdfunding sector were to open up, real estate would get a boost as more and more people would take to the internet in order to invest money on the basis of which they can make profits.

Certain things will be achieved if the real estate sector warms up to equity crowdfunding:

  1. Investment would not be limited to just local people. People from all over the world will invest in projects everywhere. This will have an impact economically and culturally.
  2. More people will be able to invest money than ever before. This will lead to greater circulation of finances all over the country.
  3. The high end real estate sector, which remains a closed space where middle class investors cannot enter will open up. As a result, the high- end market might even woo small time investors.
  4. The real estate sector in India will experience a boom.

Real estate has seen curious developments in the recent past. A company like Airbnb has experienced fourteen times more growth than Marriott over the past couple of years. In fact, Airbnb is bigger like Marriott, Hilton and Hyatt put together. The usage of low end consumers in order to become big has worked wonders in the travel industry. Short term rentals are now hot property in the real estate market. Since these developments have already happened, business attitudes to smaller investors might change in the hotel and short term rental industries. Crowdfunding in India can capitalize on this development.

Moreover, this will mean a completely different thing for small time hotel owners, businesspeople, home developers etc. who struggle to get capital from banks. Equity crowdfunding will change the game for these people as they will have access to more capital and do not have to think about the high interest rates charged by the banks.

Summing up, fundraising in India has a lot of potential to positively impact the real estate sector. But equity crowdfunding needs to be legalized with proper regulations put in place (to prevent fraud) in order for that to matter.

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