JOHANNESBURG — Technology is becoming a disruptive force in many sectors, as seen with the impact that the likes of Uber and Airbnb have each respectively had in the transport and travel spaces. But property sales – and particularly the funding of commercial property developments – are also primed for disruption. One such company already disrupting this space is Wealth Migrate, which is turning to technologies such as the Bitcoin blockchain to allow people to invest in commercial properties in the UK, Australia and US from as little as $1000. Wealth Migrate also recently listed a Cape Town property development on its platform called ‘Zero to One’, which is set to be the tallest building in that city upon completion. Investors can invest in that project from R1000 on the platform. In this interview, Scott Picken, Wealth Migrate Founder and CEO, unpacks how technology is shaking up this sector. – Gareth van Zyl
This special podcast is brought to you by Wealth Migrate. I’m speaking to the co-founder Scott Picken. Scott, your company is listed at number 42 on the 2016 KPMG Top 50 Global FinTech Companies Index. For our listeners and readers out there who perhaps haven’t heard about your FinTech company before, can you tell us what it is exactly that you do in the property sector?
Thanks very much and welcome to everyone online. From our perspective, it’s pretty simple. We ultimately help people invest in quality institutional grade commercial assets in the first world — so England, Australia and America. Although it sounds complicated, it actually really isn’t and we use technology to allow people to invest safely and simply with a minimum investment of as little as US$1000.
When you talk about institutional, you mean commercial property projects, for example?
Yes, exactly, so medical buildings in America as an example. I think one of the things that I believe is that, often, people try to use acronyms and try to make them sound more impressive than they actually are. When I’m talking about institutional grade, traditionally only big institutions would be able to go and find those type of projects. They would have the capital to be able to buy those type of projects and equally have the teams to be able to do the due diligence on those type of projects, which means that you and I had no ability to participate. But with the advent of technology and as you spoke about, FinTech (Financial Technology). Ultimately, we’re a FinTech company that specialises in real estate.
How long has your company been going for and how many investors around the world are participating in it?
The long answer to your question is that I actually wrote a dissertation in 1998 on how technology was going to change the real estate and construction space. I started a company in 2004, helping people invest in international property and helped around 2500 South Africans invest internationally, so really my whole life, I’ve been trying to marry together technology and property together. However in simple terms, when we had the crash in 2008, there was tremendous opportunity, particularly in London where you could buy buildings for 50p on the Pound and they would be finished, furnished and tenanted. The only problem was, you had to buy the whole building, you couldn’t buy one apartment and there was a good example in Wimbledon where I needed £10m.
I just couldn’t get the money together quick enough and I said, “Never again, I’m going to make sure I build a platform.” And so I found my co-founder, Hennie Bezuidenhout in 2009 and Wealth Migrate started in 2010. It took us three and a half years to figure out how to do the compliance globally because it’s difficult enough in one country. Cross-border takes you to another level, and the platform actually launched live in October 2013. To answer your question, we’ve got what we call members on the platform from 94 different countries and investors from 29 countries around the world.
You and your co-founder, Hennie are South African, but it seems like you focused on global markets first and then later came back to South Africa. Earlier this year, you decided to include South African properties on your platform. Can you tell us more about that and how those properties are doing?
Gareth, again there are always complexities. I studied at UCT and I left for London at the age of 21. I lived there for nine years, which is where I set up IPS (International Property Solutions) and fundamentally, around the world, there are three major areas or countries that people want to invest in: England, Australia, and America. Saying that, there are also countries, from a compliance perspective, that have been far more progressive when it comes to FinTech and technology and changing the regulatory environment to allow these new technologies to be used. As an example, England and America are very progressive — Australia is actually still quite behind in terms of legislation. And so two things really happened. One was that we focused on the three markets where we’d already done a lot of business and where, globally, people want to invest.
No disrespect to South Africa, but mainly only South Africans want to invest in South Africa for other reasons, whereas, globally, people want to invest in England, America and Australia. So they became our three primary markets. On top of that, the compliance was a lot more favourable to using technology and we’ve been really waiting for South Africa to be in an environment where they would embrace the new-age technology and it was taking longer than we wanted. So we actually went with the more traditional route where we integrated the platform into a listed exchange which ultimately allows people to legally and compliantly invest in South Africa as well. So, we’ve always wanted to launch South Africa.
It was more a case of waiting until the compliance regulations were in place and, as the country of my birth, I fundamentally believe that South Africans should be given the same opportunities that other people around the world have been given where technology is coming into the space. It’s disrupting the real-estate, the wealth and the investment space. Just like with any other sector, when technology comes in — whether it’s Apple in music, whether it’s Uber in taxis, whether Airbnb in accommodation — there are only three things they do. They cut out the middleman, they dramatically reduce the costs and they increase the trust, the transparency, and the accessibility. And that’s all that we’re doing to the space. We’re making it far more affordable, trustworthy, transparent, and accessible to everybody.
Regarding the South African properties on your platform, you have one project called ‘Zero to One’. That building is planned to be the tallest building in Cape Town upon completion. Can you tell us a little bit more about that and the progress on that?
Obviously when you launch a country, it’s quite nice to have such an iconic project and the team at FWJK (the project’s developers) have a prestigious track record. They’re actually building the KPMG building on the foreshore in Cape Town at the moment as well and really what happened is (it was interesting), I actually spoke at SAPOA (South African Property Owners Association) in 2015 about the advent of technology coming to the space whether you want to call it crowd funding, FinTech, PropTech; I think they’re all fancy acronyms for the same thing, which is that technology coming into the space. And Dave William-Jones (FWJK) was actually there. So they got hold of us and they said, “Listen, we’re really interested in getting involved in this new technology” and they’ve also been at the forefront of innovation.
They’ve won a lot of innovation awards in terms of the way that they put their deals together and so it was quite exciting. In the past, the way that you were able to invest with FWJK was that you had to be a very wealthy, high net-worth individual. You needed in the region of R2.5m cash and about R7.5m bank guaranteed debt. Basically, you needed about R10m liquid and with us bringing the technology, ultimately participating and basically co-developing, you’re partnering with the developer in the process. People could now participate in that development from R1000, which I think is awesome. On top of that, what’s important is that it’s a new development, so you’re effectively getting in at a higher point in the value chain.
Normally what happens in these situations is that the developer goes and builds the building, and then they get an estate agent to come along and sell the building and everyone runs to the launch and buys an apartment. What they don’t realise is that they’re buying at the bottom end of the value chain. The people who really make the money are the developers. Our attitude is why not partner with a developer and be part of the value chain and really get to see the growth.
Now, is a new development risky? Yes, it is riskier than an existing building with an existing tenant, which is why we have two types of properties. We have a growth property, which is where you partner with the developer, which is part of the development cycle, which carries more risk and traditionally has a high return. Then we have an income product, which is where it’s an existing building with an existing income, which is obviously lower risk for people that want to be able to invest and get cash flow or income from the beginning.
So, you are focusing on Cape Town right now. Would you possibly look at Johannesburg as well?
Oh, very much so. Look, we obviously just got started in South Africa at the end of April and our intention is to grow in South Africa. I’d like to think that the three major areas we would like to focus on primarily would be Durban and Johannesburg. To start off with, we want to be in the more affluent safe areas: Call it Sandton, Umhlanga, the Cape Town CBD. And then secondly, we want to make sure that we’re partnering with people with long track records.
Some of the brand names that we’re talking to have very prestigious and long-term track records in the market and therefore, the risk of failure is a lot lower. Now don’t get me wrong, technology has amazing opportunities and amazing possibilities. But I always say to people, if there was a death or you know, a rape or something in an Uber or an Airbnb in the beginning, very few people would have actually heard of them today. So for us, safety comes first and what I mean by that is, that it’s about dealing with the most trusted partners, not just trying to find anyone that has any project.
With the economic slowdown in South Africa, could that impact the properties that are listed on your platform here?
Clearly, it’s a bit of a concern. Even in Zero to One, there is a concern around new developments because it has an impact on banking, it has an impact on interest rates, and it has an impact on people’s sentiment on South Africa at large. The preference I think is going to be greater focus on income-producing assets. You know, at the end of the day, there are many South Africans on our platform. One of the reasons we launched South Africa, was many of our clients kept asking for it. At the end of the day, we do what our clients want and they wanted diversity, they wanted to be able to invest locally and internationally and that was one of the reasons we launched South Africa. But I think there’ll be much more of a focus on income-producing assets because they’re less volatile when it comes to the market changes.
Are you finding that many South Africans are using your platform to invest in property assets outside of the country, in the UK, London, the US, Australia and so on?
Yes, but not only South Africans, most people from around the world in emerging countries where they might be able to make good money in their country, but they want wealth preservation and the stability of first world markets. Currently where they have the Rand hedge or the currency hedge, so whether it’s people in China with Yuan, or people in South Africa with Rands, it’s exactly the same need. They want to have a Plan B for their families should they have to move to the first world one day. Most importantly, they want the peace of mind of knowing that their money is tied up in a legal environment, which is protected and as much as I love South Africa, I think we can all safely say that it’s nowhere near as safe as putting your money and talking in terms of legal protection in Australia, England or America.
To answer your question, there are many South Africans doing it. They have been doing it for a long time. Unfortunately, up until now, it’s only been available to the wealthy because if you wanted to go and buy an apartment in London, you needed £100 000 as a deposit which was well north of R1m. I think what’s truly exciting now is that we’ve opened it up to many more people because with a $1000, people can participate and that’s allowing a lot more people to have the same opportunity than what previously wasn’t available.
I’m interested in how your Fintech platform works. Blockchain is all the rage these days and I believe that Wealth Migrate is using Blockchain to enhance security and privacy protections for cross-border investors. Can you tell me a little bit more about how this works?
Yes, something I’m deeply passionate about and I can talk to you for days about. But let’s keep it simple and dumb it down a little bit. In the average property transactions, there are 16 different middlemen on average between the investor and the investment. People always look at me and go, “No ways” and I go, “Okay, well let’s look at the last time you bought a house”. You know the estate agent, the bank, the bonds, the attorney, the conveyancing attorney on both sides for the buyer and the seller — and there are just numerous people all the way through the process. What Blockchain does is that it takes all of that out of the equation. So, how long would you say it takes, let’s just keep it simple to a house (forget about a big commercial asset). How long would you say it takes to transfer a property in South Africa at the moment?
Probably about three months?
On Blockchain it takes seven minutes and so to answer your question, and again I could get into a huge amount of detail here, but in simple terms you have social media on the one side of the fence and you have e-commerce on the other side of the fence. They’re merging together and they’re forming social commerce, which is ultimately where people do commercial transactions together on the internet. However, they need a basis upon which to trust each other. You and I have never met each other, Gareth. If I send you money, how do I know if you’re going to actually deliver? You see in the past we had a whole bunch of middlemen, banks, deeds officers, lawyers, estate agents, and everyone in between to drive a process so that we could trust each other and we could transact. So what Blockchain does, is it forms the foundation of social commerce and ultimately it’s a distributed ledger. Imagine the blockchain, in this case, is similar to a deeds office, but it’s a deeds office on top of the cloud that’s based on thousands of computers all over the world, which means it’s irrefutable. No one can hack the deeds office, you can’t have corruption and most importantly, no one can debate if you own something or don’t. You don’t need lawyers to decide whether you ought to have sold the house and what happens is that blockchain enables people to transact between each other when they don’t know each other and by doing that, it forms the basis of trust.
Again, as I said to you, it is the foundation of social commerce, so why is it important for what we do? Well, we help people invest in real estate, whether it’s local or international. So that’s the first thing, is that we can dramatically decrease the cost by cutting out all the middlemen. Secondly, from a trust perspective, it’s irrefutable. So, if you give someone money in the old world and they say they’re going to go and buy you a property overseas, how do you know that they don’t go off to Mauritius on holiday? You don’t.
You basically go to two things. You go to a company that has a big brand and can pay for lots of advertising and/or you go to a friend, someone you can trust personally because you went to the same school or something. Whereas now, the blockchain gives you complete transparency that if you invest $10 000, you know that $10 000 is invested, it’s there, you can see it live, people can trust it. The second component for us is this trust, which is really important.
The third component, which is where it gets really exciting, is that to do cross border investment is very expensive. It takes a long time, it’s very complicated, and quite frankly, it’s been a massive barrier to entry to most people, not just from South Africa, but globally. Blockchain really reduces that. Many people know Bitcoin — so Bitcoin is built on blockchain (just in case people don’t understand that) and Bitcoin flies all over the world. People can buy Bitcoin here and they can sell it in China and they can send money to America in a far easier and less expensive manner than they can if it was Rands or US Dollars.
So now imagine how exciting this gets when you’ve got a property in America, you’ve got an investor in China or South Africa for that matter, it doesn’t matter, anywhere in the world, I want to invest and my money is immediately seen or transparent, it’s there. It immediately transacts. So the moment the fellow gets the money, I effectively get the ownership of the property, and I can view it digitally on the platform with immediate effect. I can send my money overseas in a matter of milliseconds versus days or weeks and everything just runs a lot more smoothly with a lot less friction costs.
Like I said to you earlier today, there are three things that technology does when it comes to sector and everyone tries to over complicate it, but it’s really just three things. It cuts out the middleman — and you can imagine all the middlemen being cut out now. It cuts the cost — which ultimately means the investor gets a better return — and it increases the trust, the transparency and the accessibility because now everyone with a smartphone can actually invest in properties around the world.
Scott, so are you the first company of this kind to use the blockchain in this way?
We’ve done a bit of research on this and I would say to you that we, Wealth Migrate, are the first that we’re aware of that’s done it at a global level in the real estate space. So, there are a couple of crowdfunding platforms that are very locally based. You know there might be platforms in America for Americans with American property as an example, or in England for the English. There’s no platform that focuses on global real estate that has done this that we’re aware of, except for us. For us it’s not about being the first, it’s not even about being the best; it’s about being the most trusted.
That’s why we endeavoured to use blockchain, because, as I said to you already, we believe that it’s the foundation of social commerce and ultimately, it’s the number one factor, which is going to determine trust in the future, which is why we did it so early. The last thing that will say is that most people don’t understand blockchain, even people in our own team who will say, “You know, well why are you doing blockchain, it’s a shiny little toy. You know, it might be something one day, but it’s nothing at the moment” and I say, “Yip, I agree”. The difference is that it is going to be bigger than the internet itself. We all agree, the internet had a big impact on commerce, business and investing, everything as we know it. Blockchain will be bigger than the internet itself and what people don’t realise when it comes to technology, is that if you wait until it’s the next best thing, you know it’s 2005 and everyone goes, “Hey, e-commerce is going to have a big impact on the book industry”, it’s too late to build Amazon.
What kind of blockchain are you using? Are you riding on top of another existing blockchain or have you essentially developed your own.
Actually we’re riding on top of an existing on, in fact, the one that’s used by Bitcoin. The reason we did, is that it’s the most understood globally. We are actually building out version 2 at the moment, which is in Ethereum and that’s all around the smart contract side. But don’t’ get me wrong, whenever one’s building a technology platform, you know there’s always the next stage, the next release and we really are at the elementary stage.
We launched it for the first time in October last year and what we did is we put every single transaction onto the blockchain. Now again, Gareth, that might not be very exciting for people right now, but five years from now when someone can say that every single transaction that they’ve ever done is on the blockchain, that’s of material value. So yes, to answer your question, we decided to get started with this as quickly as possible and then we’re going to build out the user functions launch-by-launch, release-by-release.
Ethereum is really interesting, especially with regards to the smart contracts. That could be incredibly relevant to your line of business.
Our vision is to make investing as simple as swipe of a finger from US $1. People look at me like I’m absolutely stark staring mad, but a guy in the township with a smartphone could take $1 in effect, and invest in a building in Cape Town if he wanted to and/or America building in America. Now we’re not there yet from a technology perspective and/or a compliance perspective, but when you start to take into account smart contracts, artificial intelligence, Big Data, algorithms and the ability to personalise robo-advising, it really does provide the framework to enable people to be able to do that and it’s not that far off.
Scott, what’s the next step for Wealth Migrate? What’s your next big plan and your next big push?
What we talk about, is the marketplace rollout, so it’s aggressively rolling out into different markets. We aim to be your trusted global real estate marketplace and to do that, we need to have a footprint in key markets and to continue to drive the demand and to allow people, to educate people and empower people and show them that there’s a different way. Just because we’ve been trained at school and through mass marketing that we should use the old traditional methodologies, people are starting to realise there is a better way, just like people realised that cars were more effective than ox wagons, just to use the metaphor. In the same way technology is changing the way we invest and at the moment we’re still very much at the early adopter phase, but with time we want to be able to enable more people. So, the next big step for us is very much that marketplace rollout which involves educating people, empowering them and equally rolling out more countries. We have built the business on Zig Ziglar’s principles, “You can have anything you want in life if you help enough other people get what they want.”
Scott Picken, it’s been an absolute pleasure talking to you today. Thanks again.
Gareth, thanks very much and can I leave you with one thought?
The other challenge we have on the planet is the wealth gap and the difference between the “haves” and the “have not’s”. I fundamentally believe that when we can get investing down to $1 per person, we will ultimately empower people and have a huge possibility of solving the greatest challenge on the planet. It’s no longer a pipe dream with the technology that’s available, it’s truly something purposeful that we can do today. I believe that it’s each and every one of our responsibilities to use technology to solve this grand challenge. And we’re really excited that a group of South Africans, with an amazing team from overseas as well, is going a long way to solving this challenge. Coming from Africa, I think we all understand the wealth gap better than anyone. So yes, we get to do something which is empowering people, but yet equally something that’s very purposeful.
Scott, I think it’s very insightful and powerful information there and I wish you the best of luck.
Awesome, thanks for your time, Gareth, keep well.
Great, thank you very much. This podcast was brought to you by Wealth Migrate.