Property developers need to be equipped for a bumpy road ahead.
With banks tightening their lending criteria, reducing LVRs and increasing pre-sales, and documentation and prerequisites getting tougher as well, the need for equity is more crucial now than ever before.
EstateBaron.com allows developers to make their own retail fundraising offer and raise equity funding for developments from Mum and Dad investors all over Australia.
Suddenly developers are able to use the power of the IPO process for a fraction of the cost. And Australians love investing in property more than any other asset class.
Development is the process of active value creation, unlike the typical passive buy and hold strategy which relies on the market growth. But developers require a lot of capital as well as specialised experience.
The model of pairing experienced developers with a large group of people who could contribute capital in small amounts is perfect.
But there are a few structural flaws.
You need a large number of interested investors to start. Any IPO goes through a book building process before it is actually listed on the exchanges.
This means roadshows, presentations to family offices, institutions and a number of brokers pushing the offer to their clientele.
Just having a compliant offer and the enabling tech to support is not enough. You need the distribution to go with it.
Now some developers already have their networks and are able to promote and attract the investor base. But most developers do not have the investor networks.
The big reason a number of people invest in the stock market is because it is expected to be liquid.
While our offers are retail, they are not listed on any stock exchange. The size of the raise and the limited period of time of the projects makes it too expensive to go through the listing process.
But that means that any investor who participate in the offer will have to wait till the project completes and returns money to investors.
Each development on an average takes about 2 years to complete. This means once someone invests they wont see money back for another 2 years.
Until they see money coming back they wont reinvest. Nor will they refer the opportunity to their friends as they want to ensure that it works for them first.
This puts a big spanner in the network effect. Two years is too long of a sales cycle.
Shares listed on the stock market on the other hand have a secondary market. Which means if you want to get out you can do so whenever you want. Assuming of course there is a willing buyer for your stock. But in a deep enough market, buyers and sellers meet at the required rate to keep the whole thing liquid.
This availability of liquidity attracts more capital to the markets. And offers that are expected to be liquid are able to raise capital at a lower cost than offers that are private or have a lock in period.
The Konkrete blockchain can solve both of these issues for the developer looking to raise capital.
We are building a distributed registry which will have a global reach. Offers listed on the Konkrete platform will be able to raise capital worldwide and from a much wider audience of interested investors.
A number of investors have already made profits in the crypto space. Konkrete allows them to move that capital into real world assets including offers for property developments.
The Konkrete distributed registry is an implicit secondary market.
In the past, for an unlisted share to be exchanged both parties had to approach the centralised issuer first. The issuer would verify the parties, record the transaction and update the centralised registry.
The beauty of blockchain is that you do not need a central party to record balance updates. Investors can exchange their shares with other verified investors on the network and the balances would get updated automatically.
The distributed ledger is, in effect, a global secondary market.
Offers listed on the Konkrete blockchain would be liquid from day dot.
Which means the earlier typical two year sales cycle would no longer exist. More capital would be attracted to the offers and developers would find it much easier to raise the require equity.
On the sales side we are also setting up a fractional fund which would allow buyers to crowdfund their deposits. This would mean that a number of people who were earlier not able to afford a property would now be able to.
Konkrete.io can allow property developers to fully utilise the power of the IPO process and raise equity in a cost effective manner as well as solve their pre-sales requirements.
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