The Inexorable Growth Of Property Crowdfunding
Property Crowdfunding did not exist prior to 2012. It was not possible to operate a platform in the USA until the ‘Jobs’ Act was passed in April 2012 which made crowdfunding lawful in the States (albeit with a very high net worth qualification criteria).
In the UK it was also virtually impossible, although with a clever legal structure that made use of a few narrow exemptions in the Financial Services and Markets Act The House Crowd was able to start trading in March 2012 and became the first property crowdfunding platform in the world.
Since that time, both crowdfunding and the sub-sector property crowdfunding platforms have experienced huge growth in the space of just a few years.
Property crowdfunding has exploded all over the globe, with platforms springing up in countries such as France, Italy, Egypt, Singapore and also in the Middle East.
Global crowdfunding, in the last 5 years, has grown from zero to a multibillion dollar industry and is growing exponentially, doubling (approximately) every two months [Source: Crowd Data Center].
The property crowdfunding niche is currently raising $2.5B a year and is forecast to multiply 100 fold to reach over $250B by 2020 [Source: Massolution CF-RE 2015]
This phenomenal growth has occurred partly due to the relaxing of regulation to enable crowdfunding to expand as it was seen as beneficial to the economy and partly as a result of peoples lack of trust and dissatisfaction with the traditional institutional alternatives that produce poor results.
In the UK, all legitimate crowdfunding companies are now authorised by the FCA (either directly or as an authorised representative of a regulated firm) and have to undergo a thorough due diligence process to assess suitability so that investors can be assured they are dealing with a reputable company.
Industry forecasters predict that the diversity of online investors will grow as a wider age range and more women become involved. Some have also noticed an increase in wealthier investors entering the property crowdfunding market. Markley Roderick (lawyer and moderator of the “Innovations in Real Estate: Crowdfund Investing” conference in April 2014) stated:
“If only a small percentage of them invest only a small amount of their assets in real estate, the market will be trillions of dollars.”
In the UK, The UK Crowdfunding industry has grown from £267 million in 2012 to £666 million in 2013 to £1.74 billion in 2014. [Source: Nesta and University of Cambridge Survey November 2014]
By 2016 the peer-to-peer market will be worth £5 billion in the UK and £36 billion within a decade. [Source: Research and Markets UK Market peer to Peer Lending Facts and Figures 2015]
Technological advancements have also aided this growth. Web platforms have allowed property companies to access a wide audience, gain attention and raise capital outside of the traditional circle of friends, family, banks and venture capitalists to raise money for their projects quickly – sometimes in the space of a few hours – rather than waiting weeks or months for a bank to approve a loan.
By using a small amount of money from a large number of individuals, crowdfunding has become highly accessible and beneficial for both investors and property businesses. Property crowdfunding also enables investors to diversify and gain direct access to the property market.
It is not possible to predict the future but what seems clear is that property crowdfunding will be on a very steep growth trajectory for the next few years at least.
Why is Property Crowdfunding Attractive For Property Businesses
- It allows companies to get in front of a large number of new investors via online platforms.
- Companies have a quick access to readily available funds as well as an opportunity to secure more capital than through other means.
- Crowdfunding can provide a way to access capital at a lower cost than may otherwise be possible
What Opportunities Does Property Crowdfunding Afford Investors?
- Investors are able to gain access to the property investment deals that would otherwise only be open to individuals with large amounts of capital. Some platforms require a minimum as low as £500 to invest.
- With crowdfunding, the due diligence research on every property deal is taken care of and investors have the benefit of the platform’s knowledge and expertise in filtering out unsuitable deals and are able to concentrate on selecting those deals that appeal to them
- Crowdfunding allows investors to diversify their portfolio, without having to invest a large amount of time / money.
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