Technology is paving the way for a segment of investors, many of whom are “digital natives,” to explore real estate as an additional part of their investment portfolio and participate financially in the real estate sector like never before, said panelists speaking at the 2021 ULI Singapore Annual Conference, held both virtually and in person in early March.
At a roundtable discussion titled “Disruption in Real Estate Capital Markets,” panelists agreed that traditional players such as institutional investors, underwriters, asset managers, and property developers still have key roles to play, even as technology democratizes data and offers fresh access into the market.
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Opening the discussion, moderator Terence Tang, who is managing director, Asia Capital Markets and Investment Services at Colliers International-AP, identified “tokenization” as a nascent trend and asked whether blockchain technology would disrupt how raising capital for real estate investments is done, by opening it up to a wider pool of potential investors.
Speakers discussed how tokenization of real estate investment and crowdfunding is enabling retail investors to make forays into the capital market—sometimes for S$100 (US$74.40) or less—and the way that financial technology (fintech) firms and property technology (proptech) are having an impact on today’s real estate sector.
“The short answer is yes, the democratization of real estate investing is here to stay,” said panelist Ng Beng Tiong, who is the deputy group CEO and group COO of ARA Asset Management Limited. “In fact, the train has left the station [already].”
He called this trend brought about by technological advances “extremely exciting and powerful,” both for investors and developers, as past barriers to entry, such as big-ticket costs, operational expertise, and long-term investment durations, are being circumvented.
“Now, this is something really new,” he added. “Real estate ownership can be fractionalized. Investors no longer have to invest in an entire portfolio, but through tokenization can invest bite-sized in a single property, whether it’s a building, a strata unit, or something even smaller.”
Ng said that this provides secondary-market liquidity across a wide range of products and that digital technology offers the prospect of borderless investment and trading platforms. Such platforms, he said, are popular with digital natives who like to take control of their own investment destiny and experiment with online investing.
Fellow panelist Chew Chong Lim, who is managing director and group head of real estate, institutional banking at DBS Bank, agreed with Ng’s assessment, referencing the rise of real estate investment trusts, or REITs, as an earlier example of fractionalization.
“This whole new level of tokenization actually [offers] cost efficiency,” he said. “It also has increased liquidity. With a digital exchange, another advantage is instant settlement. However, whereas there is the right framework to protect investor interests for REITs, or when collective sales arise, we still need to have put in place some governance for this.”
Commenting further on crowdfunding and its potential in real estate, Ng noted that Singapore, where crowdfunding investment has existed for a number of years, has been seen as a well-regulated but small, limited market.
However, he said that his company, ARA, is bullish on this front and last year invested in a crowdfunding platform called Minterest, where investors can lend to small to medium enterprises (SMEs) and individuals. Thus far, ARA has introduced via the platform four real estate products, worth about S$50 million (US$37.2 million), which have been very successful in raising capital quickly.
Calling this a “proof of concept,” Ng said that crowdfunding opens up real estate investing to “the man in the street,” who can start investing even in modest amounts. He added that ARA commissioned a recent study that highlighted Singapore as the best market for this in the ASEAN region.
“Despite the small population size, in terms of educated investors, those with money for online investment products, Singapore is the place. So we’re very excited, because if we get it right here, and through a digital platform, we can easily allow investors from the region or even further afield to invest. If we get the formula right, this is going to be very scalable.”
Despite digital disruption on the horizon, traditional players still have pivotal roles to play in the real estate ecosystem, Chew said. With the democratization of real estate data, there needs to also be further education for investors, especially newcomers.
“Who does the due diligence? Was there enough disclosure of information and data that was available to investors to make their decisions? [Answering these questions] has to go hand in hand with what we’ve been talking about today,” he said, adding that reputable financiers, investors, and fund managers help maintain high standards and instill investor confidence.
ARA’s Ng contended that crowdfunding would complement or supplement the traditional methods of investing, but not replace it for a long time to come.
“There is an ‘expectation gap’ between traditional real estate investing, by professionals looking after professional money for the long term, versus retail investors investing their own ‘emotional’ money for short-term gains over three to six months,” he said.
“Where can you find low risk and high returns over a short duration? If we can close this gap between expectations and reality, crowdfunding will actually succeed.”
Both panelists said that emerging digital technologies, as wielded by fintech firms or as found in property technology, can help shape the evolving landscape of the real estate industry. One key aspect would be in synthesizing big data and distilling it into useful, intuitive insights that can facilitate investor decisions, said Chew.
Looking ahead, Ng said that trust will be a deciding factor in how quickly crowdfunding can gain traction and succeed in this space.
“We have to have a digital exchange that allows all the characteristics that were mentioned before: the fractionalization of ownership, bite-sized investment, liquidity, frictionless trading, and cross-border trading. After all these are put together, then it can succeed,” he said.
“Furthermore, property companies and borrowers need to have confidence they can get the money they want from a crowdfunding platform, while investors want to be sure they can get their money back, with returns. If we can develop trust, within a good regulatory framework, with good sponsors, good projects, after a few successes, momentum will be created.”
