CMA puts brakes on property crowd-funding plan

The first crowd-funding project in the country has been frozen by a month after the Capital Markets Authority (CMA) demanded that its promoters file regulatory requirements.

Propertyzote Crowdfund Limited had planned to commence raising funds next month for real estate projects but was forced to move the plans to April after the CMA demanded they file a prospectus with it.

The authority launched investigations into the offer last week after the company sent out a letter to potential investors pooled from their e-mail list.

Crowd-funding is the process of raising money from many donors using an online platform such as the Internet or social media to finance a project or business venture.

“The authority acknowledges that crowd-funding is a new innovation with regard to the process or making offers of securities or investments to the public. Any provider of such a platform is, as with any capital markets product, required to make a formal application to the Capital Markets Authority regarding the introduction of the product,” said CMA acting chief executive Paul Muthaura.

The company is asking for a minimum investment of Sh5,000 with a promise of at least a five per cent annual return. The risk-free fixed-income market is currently providing a minimum of 10 per cent with the bonds fetching as high as 15 per cent though competition for allocations remains stiff.

Propertyzote, said to have been operational for seven years, operates a website where agents advertise their properties.

“Members of the Propertyzote newsletter readers formed a team with the goal to purchase properties through crowd-funding,” reads part of the letter to potential investors which promises more details for interested persons.

The CMA said it requires Propertyzote to disclose all the risks associated with the product and how they will be mitigated in the best interests of investors.

Previous attempts at crowd-funding have not been fruitful with most of the promoters shying away when asked to make disclosures.

Last year, a company called Cembe Millers had sought to raise cash from angel investors through advertisement in the dailies. The promoters were planning to set up a flour company with a daily output of 1,000 bags of maize costing it an estimated Sh2.6 million.

It estimated to sell the same number of bags daily which would earn it Sh4.5 million, leaving it with a gross margin of Sh1.9 million daily and more than half a billion yearly.

The CMA, however, warned investors against, putting their money in the firm which did not disclose its contacts in the advertisement nor a location.

READ: CMA cautions investors against Cembe Millers offer

Propertyzote have not placed advertisements of the offer but the CMA can still classify their act as a public offer under the Act which defines “offer to the public” to include “an offer which is made to any section of the public, whether selected as members or debenture holders of a body corporate, or as clients of the person making the offer, or in any other manner, is to be regarded as made to the public.”

In 2010, the CMA stopped Unaitas, then Muramati Sacco, from advertising its share offer as its listing documents had not been approved by the CMA.

Venture capitalism is yet to pick up in Kenya making it hard for start-ups to raise capital for their businesses.

The Nairobi Securities Exchange introduced Real Estate Investment Trusts (Reits) last year to open the door for property developers to seek cash from investors.

Some of the minimum requirements for a development Reit, which involves the construction of a new property is that the promoter must be holding land and have proven access to at least Sh500 million.