Crowdfunded Real Estate And Why Shanghai Will Become The Financial Hub Of The World
Jim Probasco
Given recent market turbulence, real estate investment is gaining traction, especially with Chinese investors.
Wealth Migrate CEO Scott Picken says Shanghai will become the financial hub of the world.
Real estate crowdfunding platform, Wealth Migrate, is poised to take advantage.
Scott Picken, CEO of real estate crowdfunding platform Wealth Migrate, said his company is betting on middle class Chinese investors and their keen interest in U.S. real estate. To that end, Wealth Migrate just opened an office in Shanghai.
In part one of a two-part interview with Benzinga, Picken talked about the growing attractiveness of crowd-funded real estate, as well as some of the reasons Chinese investors are jumping on that bandwagon.
Benzinga: What makes real estate a particularly attractive investment?
Scott Picken: Real estate is simple, easy to understand and tangible.
In challenging times, it’s all about common sense. For example, we invest heavily in medical buildings. During economic downturns, doctors still are required. They don't go out of business; they sign long-term leases, so you've got very stable tenants.
Another factor is “worst case scenario.” People say, “How bad could it get?” Living on the tip of Africa, I think we've actually had a window into the worst-case scenario.
Zimbabwe in 1999 was the best performing economy in Africa. In 2001, it was the worst performing economy in the world.
Real estate, specifically residential real estate, was the most valuable asset there was in the entire country, because people still need [somewhere] to live.
Whether you just want to use common sense or to be dramatic and look at worst case scenario, in both examples, real estate has come through as safe, based on actual facts and not just sentiment.
BZ: What inspired you to get involved in crowdfunding of real estate?
SP: I always believed technology would revolutionize real estate, that it would come into a very old historic industry, enhance the process and create far better value for people.
For me, the catalytic event was actually one of personal greed. In 2008, right after the financial crisis while living in Wimbledon (London), I was offered (a number of) new fully built, fully furnished, fully tenanted apartments for £160,000 to 180,000 each. Three months before the crisis, they had sold for £320,000 each.
I only had one little problem. How to raise 10 million pounds. I ran around South Africa primarily, but also around the world. We couldn't do it. Just couldn't do it.
I vowed then to make sure that I could use technology to bring people together to use the power of the crowd so that we could have the same buying opportunities as others.
BZ: You’ve said Shanghai was well on the way to becoming the financial hub of the world. What made you say that?
SP: In Europe right now there are multiple countries, languages, regulations and so forth. In China, there are 1.3 billion people in one country, speaking one language with one set of regulations. The government is unified and knows exactly where it wants to go.
In the first world, Europe specifically, it's an aging population. In the emerging world, there's incredible excitement about the emerging middle class.
In China, out of 1.3 billion people, only 100 million are in the middle class. That leaves 1.2 billion people living in poverty. Consider what happened in America over the past 150 years, and then consider that is going to happen in China.
Plus, you have Jim Rogers talking about the rising 3 billion. It's actually a no brainer.
BZ: So, Jim Rogers has been an influence?
SP: I had lunch with him and said, "I'm 38 years old. What would you do?"
He said that if you wanted to succeed in the eighteenth century, you would have gone on a boat to London. If you wanted to succeed in the 1900s, you would have gone on a boat to New York.
If you want to succeed for the next hundred years, you're either going to go to Hong Kong, Singapore or Shanghai.
BZ: Why is that, do you think?
SP: You have all these people joining the middle class. There will be another 300 million joining the middle class in the next 10 years, and they have nothing in which to invest.
All the complicated mutual funds and investments opportunities that people have in America, England, Australia and so forth – there’s nothing like that in China.
They have two options – they can invest in the stock market or they can invest in real estate.
BZ: You were in China recently and spoke with Chinese investors. What did you learn?
SP: In 2014, 13 billion U.S. dollars left China and was invested in the USA. Ten billion U.S. dollars left China and was invested in Australia.
Twenty-five million people in China own property overseas. That's in the face of exchange control where they're only allowed to take out $50,000 a year. Can you imagine what will happen when they release exchange control in the next 12 to 18 months?
People in the emerging world look to create wealth in the emerging world. Once they’ve made that wealth, they like to preserve it in the first world.
What most people don't understand if they live in the first world is that there's an economic drive to get better returns elsewhere but there is an emotional drive that is stronger.
Coming up in part two: Scott Picken on the role of Wealth Migrate and others in the growth of the middle class investor segment in emerging markets.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
