Tranio expects up to 20% of its clients to invest through these platforms in the next five years – here’s why, according to George Kachmazov, the founder and managing partner at Tranio
The volume of global cross-border real estate investments is on the rise, 2018 was the strongest year on record, totalling a staggering $1.75 trillion. The figure marks a 4% year-on-year increase and outstrips the $1.68 invested globally in 2017. Every year Tranio receives upwards of 20,000 enquiries every year for international property from investors.
Searching for property online is often time-consuming and frustrating. Prospective buyers can spend hours trawling hundreds of websites and talking to countless agents and brokers just to arrange viewings. And even if an investor is lucky enough to find a property they like, there are meetings with lawyers, taxmen, and bank managers to organise before signing off a transaction. It can quickly become a long expensive process.
According to our calculations, someone with a budget of €500,000 who is interested in buying an apartment in Berlin, for example, spends more than 200 business hours over a six-month period before closing a deal.
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On top of that, there are management costs to take into account, which can swallow as much as 25% of the revenue generated by the property when the owner finally rents it out.
There’s so much room for improvement when it comes to the process of buying income-generating property abroad. If buyers spend less time trying to find suitable properties, they’ll be able to shift their attention to investing in derivative digital vehicles, like shares and participating bonds via crowdfunding platforms.
Large digital platforms can facilitate a constant flow of profitable and safe transactions, and know how to structure investments to make them more tax efficient. Big digital platforms also have a better chance of attracting financing and can offer better terms to investors. Professional managers can conduct rigorous real estate audits and quickly sign the required documents – as a result, investors save time and see better yields.
Differences Between Funds and Trusts
What differentiates digital platforms from unit investment funds (UIFs), closed-end investment funds (CEIFs), investment trusts (REITs), and regular corporate bonds? Well, the main difference is that these platforms cut transaction/admin costs and make it possible to invest in multiple projects at once.
Investors who work with Tranio can independently choose an investment vehicle and risk profile whether it be a land plot development, building development, properties with value increase potential (value-add), or stabilised properties (core).
What Are The Costs?
The entry threshold for the overseas real estate market through the purchase of digital platform securities is relatively low. It’s not necessary for investors to own assets worth millions of dollars – it’s possible to start with a small amount. German platforms, for example, offer investment opportunities from €500, but as it stands are only available to German citizens. For Tranio’s club investors, the entry ticket starts from €125,000 but we plan to reduce the bill to €1,000 in the near future. The lower the entry threshold, the more people can invest through the platform.
The main disadvantage is the relatively low liquidity of securities. If a client wants to exit before the target date, there’s no rock-solid guarantee the asset can be saved. However, UIFs also have low liquidity, so at this stage Tranio prefers a fixed-term strategy of each investment project lasting 2-3 years. During this period it’s possible to buy a land plot, build a residence, sell it, and distribute the profit between the investors.
Time is Money
At the moment, 1% of our clients are ready to buy these securities via digital platforms. While developing our products, we decided to begin with a lending-based model featuring the project bonds of the companies owning real estate with euro-denominated yields of 7-10%. Tranio is a pioneer as it is the only platform focusing on cross-border overseas real estate buyers in the global market. However, we expect private clients’ interest in such investments to increase and according to our forecasts, we believe that in five years as many as 10-20% of our clients will prefer to invest through digital platform.
Tranio.com is an international real estate platform with a network of 700 partners worldwide and a catalogue of more than 80,000 listings in 54 countries. We have our own dedicated team of journalists and real estate experts, who publish daily news, high-quality analysis on overseas property, foreign real estate investors, expert advice, and notes on laws and regulations related to investing in real estate abroad, the latest in disruptive technologies impacting the real estate market, etc.