Crowdfunding in the property sector

Being a buy-to-let investor has meant decent returns over the past two decades but the life of a landlord is not without its stresses - and costs. You have to work hard to find the best areas for rental income and growth, maintain a property and keep it tenanted, but the biggest barrier to entry is finding the substantial amount of money to put down as a deposit to buy in.

So it should be no surprise that the combination of Britain's obsession with the property market and the rapid growth of alternative finance, has delivered new routes for investors to get into property, with both lend-to-save and crowdfunding offering a way in for as little as £10.

Crowdfunding is quickly became the alternative way to kick start your development and over the last two weeks alone I’ve had the pleasure of listening to two developers explaining how they reached out and were amazed by the amounts they were able to raise. According to crowdfunding research firm Massolution, in 2014 the global crowdfunding market grew by 167%, raising £11.3bn. Let’s be honest the number will continue to grow and the property industry accounts for a large slice of the pie. But let’s learn a little more:

• In the property world how do you reward the crowdfunders? To help keep costs manageable offering attractive interest rates may not be the best route so developers have thought of more innovative ways ranging from equity stakes through to part ownership of the actual development to longer term profit share upon sale of the development.
• Investors who can’t afford to purchase an investment property outright can have the ability to buy a stake in a property or a series of properties. Some investors receive a percentage of the rental income on the development.
• In tandem with the rise of equity crowdfunding property platforms, there has also been significant growth of peer-to-peer lending platforms. In property, peer-to-peer lending has been used to finance development projects and also to fund property purchases.

But is this something to be worried about – the rapidly growing fintech sector that is. One individual says “As a general rule, I would say the higher the returns a platform offers to investors, the worse the underwriting process will be.”


Whether or not you believe in who is investing in you, the matter of fact is that it is an alternative way to finance a project and until funding becomes more readily available. Those which have been set up by those who are inexperienced will be the first to fall when the property market starts to go sour, which might stop the nascent property crowdfunding market dead in its tracks. If this scenario eventually plays out, the wisdom of the crowd will truly be put to the test.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

 

Enjoy the weekend

Lee