Crowdfunding, a game changer

Crowdfunding, a game changer that needs new rules

The United Kingdom has emerged as a real estate crowdfunding investment hotspot, research has shown. But this game-changing alternative investment opportunity will need support and critical attention from policy makers and regulators, say industry experts.

Around 68 per cent of alternative finance investment – a total of £4.2 billion - was raised for UK start-ups and SMEs across a combination of equity and non-investment funding options in 2017. This is according to data compiled by the Cambridge Centre for Alternative Finance (CCAF) as part of its UK Alternative Finance Industry Report. It represented a 28 per cent increase on the £3.3 billion of finance raised via the same options the previous year.

Debt and equity crowdfunding in international real estate accounted for a relatively small portion of the sector’s global total before this, reported Property Week. Data released in 2015 put the figure at a total of $7.8bn, but this was dwarfed by the $760bn invested in traditional commercial real estate.

However, significant differences between the three main markets of the United States, the United Kingdom and China had emerged. Real estate accounted for around five per cent of the crowdfunding markets in China and the United States, but that figure leapt to more than 20 per cent in the United Kingdom.

The trend was clear, and additional evidence of this surge in interest emerged in CCAF research, which noted significant cross-border activity. International investors are taking advantage of real estate opportunities in the United Kingdom and UK investors looking for profits outside of their home market, it was found.

Senior Research Manager Tania Ziegler told Crowdfund Insider the research team had noticed changes to buy-to-let rules.

"Some of the platforms surveyed in our study indicated that this change may actually make real estate crowdfunding an attractive option for retail investors [who] want to take advantage of [income-bearing] property assets."

The survey was conducted before the Financial Conduct Authority (FCA) released results of its latest regulatory review in 2018. During that time the overwhelming majority of both loan-based and investment-based platforms regarded the existing UK regulations as being "adequate and appropriate".

Significant changes proposed by the FCA came as a surprise to many, and the number of respondents who rated the risk of regulatory changes as either "very high" or "high" was logged as 33 per cent, against the previous year’s figure of 25 per cent.