Investors who feel bewildered by the ever-changing regulations on bank loans and costly mortgages should consider entering the Australian property market through crowdfunding.

A new study conducted by the University of South Australia (UniSA) in partnership with DomaCom, suggests that crowdfunding could become a viable new vehicle for investors trying to make headway into the country’s increasingly challenging property market.

Braam Lowies, the study’s lead researcher, noted that while the concept was relatively new in Australia, it had been successful in the United States and United Kingdom for approximately seven years.

Young investors should consider crowdfunding

A survey conducted as part of the study showed that crowdfunding attracted a mix of investor types, with older Aussies aged between 55 and 64 representing 33% of investors – the largest cohort in the study.

Surprisingly, only 4% of respondents were younger than 35, despite the crowdfunding platform’s aims.

“If you speak to the crowdfunding platforms involved [in the study], the goal was to get younger people involved in property investment because of all the difficulties they do have these days to invest in property,” Lowies said.

The study also found that the habits of buyers involved in crowdfunding varied greatly and were dependent on age.

“Younger people do actually invest higher amounts of money, where older people will rather invest smaller amounts,” Lowies said. “Higher amounts of their investment portfolio will be in cash and cash equivalents given the later stage of their lives.”

How does it work?

Property crowdfunding investors use digital platforms to invest in the purchase price of a property, with people able to invest as little as $1,000.

The property is sold once the sale price is achieved by any given number of investors.

The seller receives income from the sale of the property shares, while buyers receive dividends and capital growth according to their level of investment.

In contrast to conventional property purchases, there are no peer-to-peer lending or debt structures associated with crowdfunding investments. Lowies believes this makes the concept more accessible to a wider pool of investors.

Opportunities to purchase properties via crowdfunding platforms in Australia are currently limited to residential and rural properties. Moreover, as property crowdfunding is a relatively new concept in Australia, the next step to further develop the strategy is to streamline regulation, according to Lowies.

“At this stage the regulation around property crowdfunding is still a bit of a grey area,” he said. “If you buy your crowdfunding share and you want to sell it, there should be a market for you to be able to sell that, because it is a financial instrument. [Currently] there is no secondary marketplace … to trade your crowdfunding share in. That is the next step.”

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