SINGAPORE (Sept 2): Those who have always wanted to get in on property development deals but lacked the capital to do it alone can now ride along with seasoned investors at a smaller quantum of $10,000 to $50,000.
A few property gurus have come together to create a co-investment platform called Fraxtor (short for “fractional investor”) that will allow investors to pool resources to invest in development projects.
Just last month, Fraxtor closed its first equity fundraising with $3.4 million from 12 investors — nine, excluding Fraxtor directors and shareholders — to acquire a detached house on Gardenia Road, tear it down and build a pair of semi-detached houses for sale.
The smallest shareholder contributed $50,000 while the largest investment exceeded $300,000. When the houses are sold and the project is completed in 2021, the investors will receive a split of the profits after Fraxtor takes a cut.
This, says Fraxtor CEO Oliver Siah, formalises what some in real estate development have always done. They find a good deal; pool money with friends, family and associates; redevelop; and sell for a profit. Putting that practice onto a platform such as Fraxtor opens the investment up to a wider market.
“We’re providing an opportunity for you to invest with us,” says Siah, in an interview with The Edge Singapore. “The bar for most funds can go up to $5 million. So, it easily cuts off a lot of accredited investors and normal retail investors.” Siah has more than a decade’s experience in real estate investment and management privately and through his family office, and was also a military helicopter pilot.
His partner, Rachel Teo of Daniel Teo and Associates, has over 25 years of experience in real estate development, investment and management. Fraxtor is also backed by property tycoon Daniel Teo, whom DTA is named after. The latter is also chairman and managing director of his family’s Hong How Group and a director of property development and investment company Tong Eng Group.
Essentially, the company wants to make real estate investments more financially accessible to individuals. The additional funding also means they can invest in more projects and diversify risk.
Blockchain-based platform
Fraxtor has developed a platform using blockchain technology. Investors will have an account in which they can deposit money or from which they can withdraw money. The platform will showcase available investment opportunities and the related financial information, so investors can decide how much they wish to invest.
Eventually, Fraxtor wants to invest both locally and overseas. The projects will not be limited to just residential properties but possibly hotels, commercial offices and retail projects — areas the founders have experience in. They are also looking to open the platform up to development opportunities by people outside of Fraxtor, if the project passes the investment committee’s scrutiny. In fact, Daniel is already considering two possibilities.
To be sure, the idea is not entirely new. RealT from the US lets investors own a piece of American real estate — also through blockchain technology — from as little as US$70 ($97). But instead of acquiring, developing and selling the property, RealT lets investors collect rent.
Fraxtor, however, would have to sell instead of rent the properties because of the Singapore Land Authority’s qualifying certificate. It mandates a sale within three years for properties with fewer than four units or developers will face an additional buyer’s stamp duty of 25%.
Edwin Lam, general manager at Hong How Group and investment adviser for Fraxtor, says, “This model always has an exit for each deal; it has to have quite a firm exit. For developers, it works for us because we have to sell it and you as an investor want to sell it.”
But as with any investment, there is a risk of making a loss and this could happen if the housing market is soft when the property needs to be sold.
Current limitations
Right now, investment opportunities with Fraxtor are limited to accredited investors because of Monetary Authority of Singapore (MAS) regulations. Siah estimates there is a pool of 100,000 such investors here, defined as those with net assets exceeding $2 million or those who earned $300,000 in the preceding year.
Fraxtor, however, is hopeful this can be lowered to the mass affluence level — those with an annual income of at least $100,000. “They tend to like to invest in real estate and a platform such as Fraxtor will allow them to access these markets because they can invest in bite sizes of $10,000 to $50,000. This is the target market we want to access,” explains Siah.
“We had a lot of interest from other people but we could not take them on. If we had the licence and ability to open up to this market, it will be better in terms of numbers and speed of funding,” adds Lam.
While Fraxtor took a month to close the Gardenia Road deal, the idea had been years, perhaps decades, in the making. It was something Daniel had always wanted to do. So, when Siah took the idea to Rachel three years ago, DTA quickly came on board.
The product, however, took two years to come to market. First, the team had to check with MAS if they could launch such a product. They then awaited new regulations that would exempt them from licensing and prospectus requirements if Fraxtor were to deal with accredited investors and offer property investments. While waiting, Fraxtor developed the blockchain technology platform costing nearly a million dollars.
The blockchain platform enables investors to invest easily in projects, monitor their holdings, and also helps Fraxtor issue digital shares that are secure cryptographic proof of ownership instead of relying on a central agency to keep ownership records.
Currently, Fraxtor still has to use traditional methods because of regulations, but it hopes that legislation for digital ownership of properties and shares will change and it can move over to blockchain technology entirely. “This can lower the costs involved in ownership and also in transactions,” says Siah.
It will also allow for the platform to evolve such that investors who have put money into a project can then sell their shares to another investor using Fraxtor. “One of our dream targets is to evolve into an exchange and inject liquidity to a traditionally illiquid market,” Siah says.
