There’s a big land-buying frenzy happening in Asia right now.
But you won’t hear about it in the news.
It’s the same kind of buying spree that took place in Beijing in 2003, shortly after the city won its bid to host the 2008 Olympics. That set off a bull market in Beijing that sent property prices up 400 percent between 2002 and 2010.
This time around, it’s quietly happening in the Greater Bay Area (GBA) Initiative – a special economic region comprised of nine municipalities in China’s Guangdong province, as well as Hong Kong and Macau. The region has 69 million people and an economy as large as that of Russia – the world’s 12th largest economy.
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|The point of the GBA Initiative is to create a single, giant economic hub, and to make Shenzhen – China’s technology centre – like the Silicon Valley in the San Francisco Bay Area. Only the GBA Initiative is three times the size of the San Francisco Bay Area.
It’s a huge market filled with high-income, high-spending consumers. And they’ll be connected by a complex web of road, air and railway infrastructure, as well as an ultra-fast mobile communications network, speeding up the pace of doing business.
So far, most of the development in the Greater Bay Area has been centered around four key regions: Hong Kong, Macau, Guangzhou and Shenzhen.
According to investment bank DBS, real estate prices in Guangzhou have nearly quadrupled since 2006. Prices in Shenzhen have risen more than fivefold, while prices in Hong Kong have gained nearly 300 percent.
The buying frenzy is spreading to smaller cities
Over the past year, China’s biggest property developers have spent US$16.2 billion buying 15 million square metres of real estate in the nine municipalities that are part of the GBA. These are the smaller cities that have been largely left out of the property boom.
That works out to about US$1,080 per square metre for an area that’s four times as large as Central Park in Manhattan.
About one-third of all the land bought by these developers is in Foshan, a city that’s 175 kilometres northeast of Hong Kong, with a GDP just one-third that of Guangzhou or Shenzhen.
Just six months ago, traveling from Hong Kong to Foshan involved a three-hour bus ride (plus a lengthy wait to get through border immigration).
But in September, the Guangzhou-Shenzhen-Hong Kong Express Rail Link opened. This bullet-train service travels at speeds averaging 200 kilometres per hour, and cuts the travel time between Hong Kong and Guangzhou from three hours to just 50 minutes.
From there, travelers can take a second line to Foshan that will take an additional 20 minutes.
This has helped turned Foshan, a once-sleepy manufacturing hub for air conditioners and refrigerators, into a bustling and modern city filled with skyscrapers, shopping malls and apartment buildings. It’s now an alternative home for millions of people who can no longer afford to live in Shenzhen and Guangzhou.
In 2017, approximately 150,000 people moved into Foshan. That created demand for 50,000 new homes – equivalent to 125 forty-story buildings.
The same is happening in smaller GBA cities like Zhaoqing and Jiangmen, where real estate is in greater supply and they’re now easier to get to because of better roads and railway infrastructure.
|Brian Tycangco is an investment analyst based in Manila, Philippines. He is co-editor of Strategic Wealth Confidential and editor of Extreme Growth Trader. Brian has worked in the financial field for more than two decades, and specializes is uncovering the best little-known opportunities within the Asian equities markets. He began his career as a stockbroker before joining BNP Paribas, one of Europe’s largest banks, as an equities analyst. Prior to joining Stansberry Pacific Research, Brian worked for the longest running investment newsletter in Asia, and built a track record of more than a dozen double- and triple- digit gains.|
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Minterest has ambitious goals as a young startup. The business hopes to connect underserved businesses with a variety of loan products in order to boost Singapore’s economy. So far, the company is off to a good start, raising more than S$30 million in crowdfunded business loans for local SMEs.
Founded in 2016 by three experienced finance professionals, Minterest seeks to empower small businesses by connecting them individual investors with through its crowdfunding platform. So far the Singapore-based startup has raised more than S$32 million in small business loans.
To find out more about the company’s success and future plans, we interviewed Minterest’s Co-Founder and CEO Charis Liau. We believe that Minterest’s startup experience and expertise in small business financing provide valuable lessons for entrepreneurs in Singapore .
When did Minterest begin its operations?
Minterest was incorporated in March 2016 and commenced operations in May 2017 after securing its Capital Markets Services (CMS) Licence from the Monetary Authority of Singapore (MAS) in January 2017. Since May 2017, Minterest has assisted businesses in Singapore that were underserved by the conventional financial institutions by disbursing more than S$32 million in loans over almost 90 different transactions.
When and how did Minterest first obtain funding? How long did it take to raise funding?
Minterest was initially funded by the founders and prior to commencing operations, we secured seed funding from friends and family. This took place over a week which was relatively quick.
What was the biggest challenge that Minterest had to overcome to raise capital? What strategy, tactic or know-how was the most helpful in convincing investors to invest in the company?
The biggest challenge at that time was that we just had a concept with no operating history to prove that the business can be successful. But once we shared our vision, mission and how we plan to execute them, the investors were convinced.
The fact that the founders and senior management team have significant banking and financial experience (125 years in total) provided another layer of comfort to the investors that we know what we were talking about.
After its initial funding, did Minterest ever require additional financing? Why?
We have not had to raise additional funding so far but the time has come for us to do so. As we move into the second half of our second year in operations, additional resources would be required for further technology build-out, marketing and other operational matters as we seek to scale our business and expand to the region.
We now have a viable business model and having proven the business concept, it is now time to move into the next stage of our business evolution.
What type of financing did Minterest obtain? Which sources did Minterest consider? How was this helpful for your business?
Minterest has only raised equity so far and will be looking to do the same in our next round of financing. For the new round of financing, we will be looking at VCs and a couple of investors who have supported us during our growing period over the last 18 months.
The equity that was raised was important for the business as it provided financing for operations as well as the necessary capital base that is required by the MAS.
How does Minterest help businesses better manage their finances?
We bring the big corporate fundraising experience to small businesses given our deep and broad banking and financial experience. Our borrowers’ journey includes a reasonably in-depth analysis of future cash flows.
Not only does this exercise assist in our credit assessment of the borrower’s ability to repay the loan, it also helps the borrower’s management to better understand how their expected cash position would be like in the future. Some of our borrowers have continued to use this tool to measure how well their forecasting is when matched against actual numbers.
How does Minterest distinguish itself from Singapore’s other crowdfunding platforms?
Minterest distinguishes itself from others through the following “3P”s:
Former bankers with a combined 155 years’ of experience who understand credit, structuring and security mechanisms. Platform investors invest with the knowledge that every deal is properly assessed and put through our proprietary Mintgrade credit scoring algorithm.
A wide range of products across all risk spectrum to feed the appetite of platform investors, allowing them to diversify their portfolio. Products are divided into four broad categories – Small Loans, Invoice Financing, Structured Loans and Convertible Loans. The diversity of products generally leads to stickiness amongst the platform investors
A set of transparent and clear processes to analyse and assess loan applications. The automated workflow that was developed in-house allows the team to quickly assess and process deals – this applies to all product categories. We have also developed a credit scoring engine that assign a rating to every loan application. The rating system is much appreciated by our investors as it provides a quick snapshot of the risk profile of the loans that are listed on the platform.
What advice would you offer to other startups in Singapore who are looking for ways to finance their businesses and operations?
It is important that start-ups have a clear vision and mission and how they are going to execute on them. Without identifiable cash flow sources, it will be very difficult for such companies to raise financing especially in the debt space. There could be a possibility to raise equity financing but investors need to be convinced that the people and business model are right and can be differentiated against competitors.
Did Minterest consider any other locations besides Singapore as its headquarters? Why/why not?
Singapore as Minterest’s headquarters is a natural choice. The founders are based in Singapore and it is also a major financial centre and fintech hub in the region. The regulatory regime is forward looking and is conducive for a business like ours to grow and flourish.
With high regulatory standards ensuring our processes are of the highest standards, we will then bring these standards to other countries as we seek to provide our services to the unserved and underserved businesses in the region.
What makes Minterest’s work most challenging? Rewarding?
The most challenging aspect is in the deal selection process. We see hundreds of loan applications each month and whilst many have interesting ideas and products, it is important not to lose sight of the most important criteria for loan approvals – cashflows.
We have developed our proprietary screening model taking into account over 200 data points to assess each deal. Structuring of repayment sources is critical in our opinion as we need to ensure that the loans can be repaid on time to our investors.
The most rewarding part is when we disburse a loan to a small business knowing that the proceeds will be used to turbo-charge the borrowers’ business, allowing them to continue to provide employment to the Singapore workforce and contribute positively to the country’s economy.
To learn more about crowdfunding or how your business can obtain a business loan, refer to our website or follow ValueChampion on Facebook. If you are interested in sharing your small business’s story, shoot us an email at email@example.com, we’d love to hear from you!
This was first published at Value Champion’s website, “Making Connections: SME Interview Series with Minterest“.
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If there’s one thing I’ve learned from 20 years of being in the investment business, it’s that having a track record matters.
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Co-Editor, Strategic Wealth Confidential, Stansberry Churchouse Research