How would you define real estate crowdfunding?
It is the possibility of investment that gives small savers of participate in an investment in real property. In Argentina and in many parts of the world, real property is considered as a very rich fountain of investment that has an important entry barrier, but real estate maintains over a long time. Here (Argentina) it is perceived as a way to save money. On the other hand, crowdfunding is also a financing opportunity for construction companies. Particularly for those who have many problems getting cheap financing for their projects and crowdfunding has given them an important possibility.
What type of possibilities does real estate crowdfunding offer?
On one hand, it offers savers the opportunity to be able to participate in real estate investments, which is something very (required/desired). And, on the other hand, it provides an opportunity to companies because it costs to obtain financing.
For example, we were a construction company and we began as a way to finance projects. In the last year, with all the more crowdfunding underway, we armed the platform. Before, it was more between acquaintances and from 2016 on, we assembled the platform.
And then you saw that there was an opportunity in that field.
Yes, current investors we already had were maintained over time and all the people we are talking with show interest. Real estate crowdfunding experienced high growth over the past year. In Argentina alone, there are now three platforms dedicated to this.
What makes your platform special?
We are the only ones in the interior of the country because the other two platforms are in Buenos Aires and we are in Córdoba, although many of our investors are actually in Buenos Aires. The other difference that we have is that now we want to incorporate projects that we do not develop and make a map where we detect opportunities in the market; in other words, a map for achieving the most precise possible selection of projects.
What makes an opportunity attractive?
The main thing is the percentage and the sale values. Many times they vary a lot depending on the area. The profitability is one of the main things to detect an opportunity and also the sale speed, access to routes, that it has good (communication/connection), that it is in a good neighborhood… Obviously if it is an area with a park with games, well lit, and connected, then it is going to make the project more attractive and its value will be superior.
Why are the profitabilities so high in Latin America?
In Argentina and in Latin America there is a very large inflation. You buy something that is worth 100 and the following year it is worth 130. Then with an annual profitability of 30% – which is normal in Argentina – I cannot offer you a project with 12%, because you would lose the value of your money. What happens is if today I obtain and make a project and it exits at one million, I have to ask myself, Today, if this were finished, how much would it sell for? Surely it would sell for one million two hundred. If I end the work in the lapse of a year and sell it, all the prices rise, and therefore, my actual profitability is similar to that of Europe with 18% or 20%. But in pesos, to add in inflation, they give the amounts that we have, of 38% in pesos.
And what do you do to reduce the uncertainty of the investors?
We ensure the construction by buying the initial materials. Almost all the developers in Argentina do that. The work force is being paid a long time with the expenses that we hoped. To those investors who participate, we give them a legal security based on the contract that we sign. We have worked the most on that and consulting a lot to know how to give legal security to investors through the different legal figures.
How is the legal issue? Are there some laws in motion?
There are laws in motion for entrepreneurs and real estate crowdfunding, but there are still none that are completely defined. It is all rather new. There are projects underway and this year it is putting a lot of emphasis on entrepreneurship. New companies are the driver of the economy. For example, now they are going to put a law to be able to form a company in 24 hours when in Argentina to create a business has always costed months, which is very positive. It is definitely movement. With crowdfunding also, but nothing defined. Here, inside of these platforms like ours, we use trusts or normal companies.
Do you invest in real estate crowdfunding?
Yes, of course! We were our own first investors and we continue being investors, we believe in the model of crowdfunding, and we are completely convinced that it is a great business model. Crowdfunding found an exact space within real estate so that many people who want to join now have the opportunity.