When Fintech and Proptech come together: Real Estate Crowdfunding

A slope of fintech that is taking center stage is in the real estate sector. And this is contextualized in the revolution that in this sector is beginning to be generated by the impact of digital innovation. Thus, in recent years, as has happened in other industries with the neologisms fintech, regtech, legaltech, among others, the term Proptech (Property Technology) is being used to name everything that includes the application of technologies in the value chain of the real estate industry; phenomenon that proposes to improve the forms of use, purchase, sale, design, construction and administration of properties, solving their inefficiencies and old processes.

Proptech encompasses from the construction of intelligent buildings and shared economy business models in the use of real estate assets (eg WeWork and Airbnb), to Real Estate Fintech, which arises from the intersection of fintech and proptech, where the crowdfunding promises to revolutionize investment and financing.

Crowdfunding and Real Estate

It is widely known that the real estate industry is one of the largest in the world - its assets are worth more than stocks and bonds as a whole - with investment in the global real estate market reaching a record $ 1,8 trillion in 2018 Likewise, investment in real estate assets is considered a more stable investment and the profitability that it generates in the medium and long term is significantly higher than expected with traditional debt and capital instruments. However, the barriers to entry to invest are usually high.

Then, the importance of crowdfunding lies in the fact that it makes investment in this sector more accessible, allowing more people to benefit from the financial returns on investment in real estate, which implies the democratization of real estate investments.

Source: CH Alliance

Thus, crowdfunding platforms such as Brickvest and Housers are being seen, connecting investors with real estate investment opportunities without borders and with small tickets, also giving way to diversification.

In addition to the access that crowdfunding brings as a concept, these platforms are often differentiated from the traditional Real Estate Investment Trusts (REIT). REITs are corporate entities that manage and own a portfolio of real estate assets. Crowdfunding platforms offer analysis, monitoring and prediction tools, which allow new investors to understand the opportunities and associated risks of the investment.

Similarly, the benefits of access to financing by developers of real estate assets, such as developers, range from a rapid obtaining of alternative or complementary financing to that of the banks to a greater visibility of their projects.

In addition, there is great expectation about the impact of blockchain-based businesses, such as the tokenization of real estate assets, the use of cryptocurrencies and smart contracts, which will definitely make the division of property and its administration more agile.

Latin America and Regulation

However, however, Proptech has a late development in Latin America, the truth is that it has great growth potential in this region, considering that Latin America is the most urbanized region in the world, which means we have the highest proportion of inhabitants living in a city.

It is therefore essential to find an adequate incentive system that allows and promotes financing and investment mechanisms in the real estate industry such as crowdfunding.

In this regard, the figure of financial crowdfunding is being regulated in recent years in countries such as Brazil, Mexico, Argentina and Colombia, and there are also bills in Peru and Chile awaiting approval.

In general terms, following the global trend, the regulation in these countries establishes that crowdfunding platform administrators request prior authorization to carry out their activities before the securities market supervisory bodies, and must comply with certain standards in terms of of minimum capital, risk management, corporate governance and information obligations.

However, additionally, investment limits are contemplated by project, investor and crowdfunding platform. It is this last aspect that deserves more attention, since according to it the crowdfunding market will be encouraged or discouraged.

Regardless of whether or not you agree with the paternalistic criteria that the imposition of the indicated limits means, it is clear that your determination should be guided by the search for the balance of investor protection, innovation and investment promotion and financing; but also, in the case of crowdfunding in the real estate sector, it is necessary to consider the particular characteristics of this sector.

For this purpose, the amounts of the large real estate projects that are financed by banking entities or those similar to the REITs, which in the Peruvian case are the Investment Funds for Rent of Real Property (FIRBI) and the Securitization Trust for Investment in Real Estate Income (FIBRA).

This not only with the intention of making crowdfunding platforms competitive with these entities, but also so that the digital business model itself that is proposed with crowdfunding can be developed even in conjunction with or by these traditional entities, which finally It will result in the expansion of access to investment and financing.

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Jacqueline Escobar
Jacqueline is a specialist in Fintech, Legaltech, Financial Regulation and Capital Markets. Fellow in financial services by the International Bar Association (IBA) and ITEC Scholarship Training Program. He has worked as a Legal Analyst in the Superintendence of Banking, Insurance and AFP (SBS), in the Superintendence of Securities Market (SMV) and as an Associate of the Banking and Finance area of ​​the Rebaza, Alcázar & De Las Casas study. Currently, he is In-house Legal Counsel of Finsmart Peru and Legal Counsel of Fintechlab.


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