In 2014 the World Economic Forum listed rising income inequality as one of the world’s most potentially damaging issues. Oxfam recently identified that the planet’s 85 richest people have an accumulated wealth equivalent to that of the poorest 3.5 billion – almost half of the world’s population. In his book Capital In The Twenty-First Century, economist Thomas Piketty points out that GDP is currently being outpaced by return on capital, meaning that today’s economy functions in a way that only makes the rich get richer.
Even more concerning is the fact that in a global economy plagued with inequality, Latin America has been named as the world’s most unequal region by the World Economic Forum. Figures show that in 2014 Latin America’s wealthiest 10% of individuals represented over 70% of the region’s wealth; Oxfam have even suggested that this ratio will increase so that 1% will hold 99% of the region's wealth over the next six years if something isn’t done soon.
It is important to note that one of the major sources of greater income for the already wealthy is return on capital from investments – as mentioned above this is in fact surpassing GDP. The problem with this is that the most profitable forms of investment are often restricted to those who already have the funds to invest; expressed another way, one of the best methods of accumulating wealth is only accessible to the wealthy, resulting in them increasing their worth while the poor, or in fact, even the middle classes remain poor.
Through Real Estate Crowdfunding however we have the opportunity to begin a movement of change against these entrenched investment models and allowing a more diverse range of people to enter the investment sphere. The internet is the driver behind this change, with crowdfunding standing as the spearhead of the operation. The recent US JOBS Act allows US non-accredited investors to participate in equity crowdfunding; legislation such as this, combined with the rising popularity of crowdfunding as a whole, means that the chance to gain returns on capital is now open to more people than ever before, thus providing a chance for us to ease economic inequality.
A further development in the story is the rise of Real Estate Crowdfunding. Investing in real estate is a far more stable way to gain returns, seeing as housing tends to remain solid, while stocks are volatile and investing in start-ups has always been an incredibly high-risk strategy. Again, real estate used to be a domain strictly inhabited by high-net-worth individuals, but Real Estate Crowdfunding relies on people investing much smaller amounts, making it open to everyone. It also gives these new investors access to information and expertise that were previously withheld by industry insiders.
For Latin America, this development in the real estate market is significant. The online nature of Real Estate Crowdfunding means that investors can make their investments based in US Dollars, and as such avoid the pitfalls of local unstable currencies. Being online also means that Latin American investors can put their money into properties anywhere across the globe – i.e. in locations with more economic stability. Real estate, of course, is an asset, actual bricks and mortar, and as such provides Latin American crowdfunders with an opportunity for stable long-term gains that accumulate over time, especially when using stable currencies that are above current low interest rates.
So what Real Estate Crowdfunding can do is empower a new breed of Latin American investors and provide them with the chance to increase their wealth using stable long-term property investment strategies. At the same time, Real Estate Crowdfunding takes properties out of the hands of the usual professional investors and helps reduce the risk of a monopoly, a problem that is prominent in Latin America. The hope is that more and more people will turn to Real Estate Crowdfunding to kick-start the push to reduce the rank income inequality that exists in Latin American countries. With Massolution predicting that crowdfunding will surpass traditional venture capital in 2016, the outlook is good and at Bricksave we are proud to be part of this new investment movement.
by Bricksave CEO, Tom de Lucy
November 17, 2016
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