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The Real estate (property) sector is embracing both debt (P2P) and equity crowdfunding in the UK and elsewhere around the world. To date 19% of the total money invested on UK equity crowdfunding platforms tracked by businessagent.com has gone to housing and property; only technology has commanded more (29%).
NESTA data suggests that peer-to-peer (P2P) lending to real estate made up 25% of the market in 2015, a substantial percentage and the perception is that this percentage has increased since then.
Investors interested in the sector now have a number of specialist platforms that they can examine, inclusive of crowdfunding platforms like property moose, the house crowd and propertycrowd and P2P real estate specialists like CrowdLords and PropLend.
But why is the property sector embracing equity and debt crowdfunding?
Developers and landlords seeking loans or finance have found that the debt (P2P) and equity crowdfunding markets can be more relaxed than the Banks thanks to the numbers of investors. This is largely thanks to two factors – firstly, there are more investors to spread the risk of investment across. Secondly, many of the property crowdfunding platforms hail from a property background themselves, their specialist knowledge means that they can often understand the complexities of deals better than the Banks.
Most real estate debt crowdfunding is for short-term property development or bridging loans. The P2P lenders are rarely the first port of call, this still tends to be the Banks or specialist bridging loan lenders however, this may change. It should be noted that P2P loans for this sector can take longer than the Banks, but rates that typically range between 1.2% and 3% a month and a lender that understands their needs and the risks involved are attractive to developers.
This understanding applies to property equity crowdfunding platforms too. Banks may not want to take on the typical difficulties that come with property development, crowdfunders specialising in the sector feel differently. It also helps that crowdfunders can raise new capital across a number of investors for every deal. In contrast property funds have a finite amount of money to invest.
In turn the equity and debt crowdfunders can be more relaxed because risk is spread across a number of investors, money is raised for each new opportunity (development/deal) and the book to loan values are attractive, typically 70% or more. The time that it takes to recoup losses may put off the Banks, but for specialists who understand the sector the ability to recoup is part of its attraction.
So what is in it for investors?
Low barriers to entry may be part of the appeal. You can invest from as little as £10 with some of the crowdfunding platforms (property moose for instance), a lot less than the cost of a property or the initial investment in a property fund.
Yields are also attractive. It is not untypical to receive 1% per month for P2P property loans. 12% per annum is considerably higher than more traditional forms of income generating investments like equity income or bonds are offering at present and this is higher than buy-to-let is offering many investors too.
Property crowdfunding can offer investors the chance to build diversified portfolios and can offer the combination of capital growth and income. The platforms also offer investors access to both residential and commercial property, again offering them diversification.
Risk is shared with other investors and is generally lower than other crowdfunding investment because of the loan to book values that are typically 70%. To put that another way, whilst it may take time to recoup money if a development collapses or defaults on their loan because the loan or investment is secured against assets like a site or a development these can be sold to pay debtors.
Compare this to a buy to let investment. The initial outlay is high because you have to buy the property. There are legal and stamp duty fees. Tax treatment recently changed and is no longer preferential. There are ongoing maintenance costs, management duties and letting fees. The risk of your investment is held by you, it is not shared. As yields on buy-to-let are being squeezed the appeal of property crowdfunding to these types of investors is growing.
Businessagent.com let you see the UKs property crowdfunding sector in one place.
Tagged: property real estate equity crowdfunding debt crowdfunding invest investing investment NESTA
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