December 28, 2015
It’s no secret that India is in the midst of an extraordinary long-term growth phase. The World Bank estimates that the country will be the world’s fastest growing emerging economy by 2017; the IMF agrees but predicts that it will happen even earlier. A core feature of this development is the rise of the middle class. The number of Indians in the middle-income group is anticipated to climb to 200 million by 2020, and then to escalate further to 475 million by 2030.
Over the long term, real estate values are expected to rise in tandem with the upsurge in the middle class population and the corresponding increase in demand for flats, villas, office buildings, and retail establishments. This principle bodes well for property investors. But as anyone who has conducted real estate transactions in India can describe, the experience can be harrowing. The purchasing process often includes red tape, heavy time demands, and legal uncertainty. Moreover, the assumption is that investing in real estate, by its very nature, means forking over large cash outlays. Faced with these barriers, many individual investors shy away from real estate beyond their own homes, instead looking elsewhere for ways to grow their wealth.
An innovative company has begun to change all that. The leaders of SmartOwner describe their firm as “India’s first and largest online marketplace for real estate investors”. With clients across nearly 20 countries and 160 cities, they have established themselves as the leading crowdfunding service for Indian-origin investors anywhere in the world. So far, they’ve helped clients invest in more than 8 million square feet in premium properties. Founded in 2012 by veteran Silicon Valley entrepreneurs with deep experience in real estate and IT (including the creation of Snapfish, which they sold to HP for $300 million), the company’s vision is nothing less than to revolutionize property investment practices in India.
SmartOwner’s modus operandi is to scout out planned projects from reputed developers, negotiate steep discounts, and then pass along these savings to clients. Since the company’s bulk purchases are made in the very early stages of a project—often in the pre-launch phase—the discounts to clients can be as much as 30% below the market rate.
A key differentiator in the SmartOwner model is the option to invest flexible amounts. Rather than committing a large sum for a single property, investors can purchase on a flexible down payment basis. This means that there is a lower barrier to entry on each purchase, and also that investors can diversify across multiple projects and cities easily. Furthermore, investors can keep purchasing smaller amounts incrementally, creating a robust property portfolio over time. This approach stands in stark contrast to the traditional model of saving up or borrowing to buy a single flat or villa. In other words, SmartOwner enables property investors to put their eggs in various baskets.
Another differentiating feature of the SmartOwner model is the layer of safety it offers to investors. First, the company conducts exhaustive market and legal due diligence on each property; in doing so, it ensures that the location is advantageous, the developer has a strong track record, and that the title is clean. “We use a 72-point checklist on each and every property,” said CEO and founder Vikram Chari. “This means we leave no stone unturned with regard to clearances, land surveys, and other title checks.” As an additional safeguard, SmartOwner channels all transactions through an escrow account, a practice which is not yet common in India.
In a further departure from traditional real estate transactions, SmartOwner keeps up the relationship with the investor long after the initial purchase. When the time is right to sell, the company assists the client in divesting the holding profitably. Overall, client’s profits have been excellent so far: the company claims that a return of 20 percent within 12-36 months is typical. It’s the combination of deep initial discounts and subsequent market appreciation that enables clients to achieve impressive returns.
At present, SmartOwner is concentrating on assets in the urban IT hubs of Pune, Chennai, and most particularly Bangalore, where fast population growth, high white-collar salaries and low property prices converge to make an attractive investment environment. The process is designed to be hassle-free and easy for an investor to carry out online, which is a particular convenience for the company’s many overseas clients. Chari sums it up:
“Our clients are scattered around the world but are aware of the tremendous growth potential in cities such as Bangalore. We make it simple and safe for them to take part in that growth.”
The convergence of historic growth, online technology, and business innovation has enabled SmartOwner to create this viable new model for property investment. As investors become more comfortable with crowdfunding and convinced of its advantages, SmartOwner is well-positioned to lead a transformation in the marketplace.
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