Property Crowdfunding Investment or Buy to Let?
As the UK Government sweeps in with more and more tax changes on the buy-to-let sector, property crowdfunding investment becomes an increasingly attractive option.
Jeremy McGivern, founder of Mercury Homesearch, has stated that he thinks that property crowdfunding investment is likely to represent the biggest change within the housing market over the next few years.
However, along with his comments, McGivern issued a strong warning that the rise of property crowdfunding investment could have a ‘catastrophic’ outcome. Whilst the general consensus is that the rise of the property crowdfunding industry is a positive development, in that it democratises property investment, McGivern thinks that allowing a wide range of people to access the previously out-of-reach property market could lead to irresponsible investment, as people fail to understand the risks involved.
Lee Grandin, of peer-to-peer lending platform Lend2Landlord, surprisingly concurred: “Any mechanism such as a P2P platform that engages a funder that is not able to make a sound decision on whether to lend its money is a total disaster.”
He went on to make the point that “…risky investment should be limited by your net worth but Brexit clearly shows you can’t dictate what people should or shouldn’t do so that is unlikely to ever happen.
“There is only ever one message you can ever say and it must be said clearly and concisely: Your capital is at risk; you could lose all your money.”
But are they right about property crowdfunding investment?
Whilst Grandin and McGivern do have a point about the risks of getting into P2P lending or property crowdfunding investment without adequate understanding of the risks involved, we would argue that the vast majority of investors are intelligent and informed individuals.
In order to pass the registration process, at The House Crowd for example, prospective investors must pass a test. They must show they understand what property crowdfunding involves, as well as its risks, before they are allowed to continue. Furthermore, FCA regulation holds property crowdfunding platforms to strict controls that must be legally adhered to. Investors must be ‘clearly and concisely’ (as Grandin puts it) aware of the risks, and we aim to do this at every opportunity.
Perhaps McGivern and Grandin underestimate investors in property crowdfunding. We certainly see a wide range of benefits to the property crowdfunding and P2P lending model. At a time when the buy-to-let market is increasingly strangled off, at the same time as the number of renters continues to grow, the model provides a much-needed solution.
Of course, being absolutely aware of the risks, and exploring all avenues for investment before deciding on property crowdfunding is vital. Investing money is a serious matter, and not one that most people take lightly. And nor should you.
We continue to be fully in favour of the democratising force of property crowdfunding, and the continued flow of movement it gives the property market. In the North West in particular, increasing levels of property crowdfunding go hand in hand with the wealth of regeneration that is building a bright future for the region. There continues to be a real problem with shortage of affordable homes, and property crowdfunding might just be one of the solutions to that.