Singapore-based and NSX-listed real estate crowd-funding company CoAssets has established its second strategic joint venture (JV) as part of its regional expansion. It has formed a JV with Fujian Yaosheng Zichan (Yaosheng), which will enable its entry point in the People’s Republic of China.
According to a release, Yaosheng is a well-established conglomerate, whose development funding arm does in excess of S$200million deals annually in Fujian province alone. The JV structure, in which CoAssets maintains a 40 per cent interest, will commence operations from next month.
CoAssets will function as the operator of the JV, while Yaosheng utilises the CoAssets’ platform for all its property developments in China, as well as facilitating the introduction of new developers to the JV. Shortly after JV operations in Fujian commence, Yaosheng will assist the JV to expand crowdfunding operations to other neighbouring provinces.
CoAssets will retain control over all the IP (trademarks and branding) and receive an annual license fee of 15 per cent of the JV’s net profit after tax. Under the key terms, CoAssets has appointed two directors, while Yaosheng also has two directors. Significantly, the JV has been formed amidst a capital flight from China into foreign real estate.
Chinese real estate
Real estate has been a key engine of China’s rapid economic growth through the 2000’s, with real estate investment growing rapidly from about 4 per cent of GDP in 1997 to 15 per cent of GDP in 2014. Residential investment, in particular, is high when compared to and with other countries. According to a 2015 IMF working paper, it accounts for about 15 per cent of fixed asset investment and 15 percent of total urban employment.
According to the IMF research, in China, bank lending to real estate accounts 20 per cent of total loans, with strong linkages to upstream and downstream industries. However, since 2014 real estate activity has seen significant declines.
What is occurring is a nationwide slowdown in residential price growth, a contraction in transactions and new starts, as well as falling investment.Distortions make the property market in China susceptible to both price misalignment and overbuilding. On the supply side, the market is distorted by local governments’ reliance on land sales to finance spending.
The 2014 property downturn has been caused by previous overbuilding across most cities, meaning that an adjustment has to happen to unwind the excess supply and restore equilibrium to the real estate sector.This is already happening, with housing prices increasing and stabilising as its supply declines.
Coassets growth plans
Commenting on the agreement, the CEO of CoAssets, Getty Goh, said: “This joint venture adds to the growth opportunity unlocked by our recent JV announced in Indonesia. Fujian Yaosheng Zichan is an experienced participant in the real estate development sector in the People’s Republic of China, and this partnership will allow us to leverage off their development pipeline as well as their high-quality network.”
In Q4 2015, since its listing on the National Stock Exchange (NSX) in Australia, CoAssets has entered into a collaborative arrangement with the East Java Government, in addition to forming a JV with Yaosheng in China. The firm intends to rapidly grow its investor and revenue base, as well as expand its real estate investment opportunities, with this latest JV.
Goh credited their current success to their initial seed funding from the Interactive Digital Media (IDM) Jumpstart and Mentor (i.JAM) initiative, administered by Singapore’s Media Development Authority (MDA), as contributing to its brand strength. He added that the brand value associated with being a Singaporean firm and its NSX listing – implying transparent and accountable financing practicies – were additional pillars of CoAssets.
According to a release, they have conducted more than 28 real estate crowdfunding deals with a cumulative value of over S$38million via CoAssets over the last two years. They are also expanding into the business crowdfunding segment, with trials that they claim saw positive results. Goh added that ,”…our analytics and work with big data is driving conversion rates and shortening funding cycles”, noting that he intended to replicate this model as CoAssets expanded across the Asia Pacific.
Commenting on crowdfunding, tCoAssets CTO, Dr Seh Huan Kiat, said, “CoAssets envisages itself as an Uber for the crowdfunding space. Uber serves its users by cleverly matching the demand and supply of rides with the help of big data. Similarly, we hope to serve our users by matching the demand and supply of crowdfunding needs for the region.
He added, “Even though the form of crowdfunding, be it debt or equity, may vary across the different regions as it will be in compliance with the local regulations, the big data engine that drives CoAssets remains unchanged.”