Conceptualizing the challenges and contextual factors affecting property crowdfunding in New Zealand, and the response strategies of the real estate project finance industry : a thesis submitted in partial fulfilment of the requirements for the degree of Doctor of Philosophy, Massey University

Abstract

During the past decade, property crowdfunding (PC) platforms in overseas markets such as USA and UK have grown rapidly and raised billions of dollars of finance for real estate projects. Yet, PC is struggling to gain acceptance in New Zealand, and the reasons why are not fully understood. It is also unknown how incumbents in the real estate project finance industry may strategically respond to PC, if or when it grows in the future. This study is a qualitative investigation into the challenges and contextual factors impeding the growth of PC in New Zealand, and the response strategies of the incumbents. In-depth one-to-one semi-structured interviews were conducted with 31 knowledgeable and experienced research participants from diverse stakeholder groups including PC platforms, bank and non-bank real estate project financiers, and the property industry. The research participants were largely from New Zealand, with a few from USA, Europe, and Australia. The primary data from interviews was complemented with extensive secondary data. The disruptive innovation theory (DIT) was used as the main theoretical tool, supported by literature on organizational legitimacy and reputation building for young firms, as well as legitimacy building in crowdfunding.

The research showed that PC in New Zealand is small and nascent. PC platforms in New Zealand face several limitations, specifically, lack of: (a) transparency, (b) due diligence, (c) exit strategies and/or secondary markets, (d) scale and diverse properties, and (e) “crowds” of investors ready to invest. The study also found that numerous contextual factors are hindering the growth of PC in New Zealand, categorised as: (a) property developers, investors, and the construction industry, (b) cultural and behavioural factors, (c) regulatory framework for PC, and (d) population and income factors. Based on analysis of successful platforms in overseas mature PC markets, the study found that these limitations are solvable for New Zealand. Despite the challenges PC is currently facing, which must be resolved if it is to realize its potential, PC in New Zealand has a positive future outlook. Incumbents such as banks can strategically respond to PC in three main ways: (a) ignore PC, (b) collaborate with PC platforms, and (c) strengthen own business model, products and services. The study advanced a conceptual framework on challenges and contextual factors affecting PC in New Zealand, response strategies of the incumbents, and recommendations on how to solve the problems impacting PC platforms.

This research makes several academic contributions. First, it contributes to build knowledge on PC in New Zealand, a hitherto unresearched and little understood topic. Second, the study contributes to DIT by testing its tenets, predictions, and conjectures in a previously unexamined context of PC in New Zealand. Third, this study contributes towards alleviating some of the inherent limitations and weaknesses of DIT. Fourth, the study found that New Zealand has a particularly high concentration of several adverse or unfavourable contextual factors in one single market that are impeding PC, and the real estate project finance industry has a low disruptive susceptibility. These findings have important implications for DIT. Fifth, the study delivers a comprehensive literature review from multiple disciplines, thereby contributing to the knowledge base in the PC field. Sixth, this study makes a methodological contribution. The qualitative methodology used has not yet been seen in previous studies on PC. By utilizing a qualitative methodology and collecting extensive primary data through comprehensive interviews with diverse stakeholders, the study shows the complexity of introducing a new innovation, from a contextual and behavioural perspective. Lastly, this study’s findings can benefit other small advanced economies. The challenges and problems faced by PC in New Zealand suggest some important lessons to be learnt by other similar small advanced economies. Numerous practical, policy, and social implications arise from this study. It makes specific recommendations to different stakeholders of PC, including PC platforms, developers, banks, investors, and the PC regulator in New Zealand, namely the Financial Markets Authority.