Denne artikkelen tar for seg hvordan crowdfunding gjør det mulig for yngre generasjoner i England å komme seg inn på boligmarkedet. Flere land i Europa følger etter, også Norge.
written by: Nikkita Dixon
Two years ago a report revealed millennials were feeling confident about their chances of getting onto the property ladder in the UK. Of those surveyed, 69% said they believed they would have a deposit saved within five years. At the time, the findings indicated the seemingly overinflated sense of confidence was due to not fully understanding the finances and process that goes into buying a house, but perhaps it was because they knew a solution was just over the horizon.
When society told millennials to expect job insecurity, they changed the game and created the gig economy. Now as they are told to expect to save for an average of 13 years if they want a home in England (a whopping 46 years if they want to live in London), a new era of property crowdfunding is emerging as the solution to an overpriced housing market.
What is property crowdfunding?
For anyone who is new to the term ‘crowdfunding’, imagine you need £100 to invest in something – a business idea, a creative project, even a bowl of potato salad. Now imagine you could pull together 100 people who were all willing to contribute £1 each to see your vision come to life in return for a small slice of the result. When you apply the concept of crowdfunding to property investment, it instead sees a group of investors focusing their contributions on a piece of property or an entire development project. Investors will then get a share in the rental returns or property sales (depending on the details of the crowdfund), proportionate to their investment.
What are the benefits?
As the generation who grew up watching their parents stomach the pains of the global recession, millennials know the pitfalls of putting all of their eggs in one basket. They’ve learned property doesn’t always go up in value and know financial institutions don’t really have their best interests at heart. In fact, 92% of millennials are openly distrustful of banks. Investing in property crowdfunding has grown in popularity because it allows them to work toward a deposit for their first home or even build a retirement plan based on the returns of several properties, all without the help of those pesky bankers.
For budding homeowners, crowdfunding does away with the long slog of saving the average £33,000 deposit required. They can instead start their property portfolio with as little as £10. It also means small-time investors can dip their fingers into large-scale developments or properties in other countries – something that may never have been a reality in traditional property investment.
The level of risk is also lower as your name isn’t anywhere on the title of the property and there’s no mortgage involved, so your credit rating isn’t affected if things start to go south. Plus you don’t have to go through the lengthy process of selling your property – if you want the return on your investment to be made liquid, you can do so at any time.
In terms of investment, you’ll usually get a higher rate of return if you invest in property. Millennials are finding it quicker to pull together a deposit for their first home by initially investing in crowdfunded projects because there is more cash to be gained from rental returns or sale prices than from the interest you would get from your savings account.
What are the risks?
Naturally there are some downsides to property crowdfunding. The benefit of having someone looking after the entire process comes at a cost. The bigger players tend to charge an average upfront 5% finders fee and a 15-25% profit share on the yield and final capital gain. In terms of control, you have very little. The rent, the tenancy, the management and the costs are completely out of your hands, as is the ability to speed up the process of selling the house. The whole group must be on board before you can make gains on a sale and, in the case of some crowdfunding platforms, the group only goes to a vote every five years. So if you’re in need of fast liquidity, you may need to find someone else to buy your shares via secondary market if there is one.
There’s also the chance you might lose your investment funds if the crowdfunding company goes bankrupt. That said, many of the larger platforms now have Financial Services Compensation Scheme protections, so it’s important you do your research before signing up.
If you think you can handle the risks, let’s look at which companies are making waves in the property crowdfunding sector.
Who are the big players?
Founded in 2012, TheHouseCrowd claims to be the world’s first property crowdfunding platform. Getting their start by buying terrace houses in Manchester, the company has evolved to provide a range of investments that are secured against property, from equity crowdfunding to peer-to-peer lending. Beginning at £1000, investors can get a foot on the rung of the property market ladder with TheHouseCrowd. A recent crowdfund saw £600,000 of investment raised in just five hours for its St Thomas Road loan project, which offered investors 8% yield over a fixed six month period at 63.2% loan-to-value.
With an aim to get the UK building again, TheHouseCrowd has started funding its own multi-million pound new build developments and recently introduced a specialist bridging finance service, with plans to launch their own in-house finance and investments website in the near future. It’s grown by more than 100% in the past year and has to date paid £10million in returns to investors.
Property Partner launched in 2015 and swiftly gained momentum as a powerhouse in the sector. The online portal allows investors to create a diverse real estate portfolio and leave the purchase, tenancy and management to the company’s ‘world class property team’ who ‘harness deep market knowledge to negotiate quality deals’. Investors can choose from hundreds of properties and secure a deal within minutes by paying a 2% one-off fee on the initial investment. According to their website, the average rental income pays on average 3.2% and all proceeds are yours to keep should you decide to sell. To date, Property Partner has returned more than £15 million in capital to investors.
Bolstered by the uncertainty surrounding the EU referendum, the buy-to-let online marketplace has continued to boast impressive figures, with more than 10,000 investors and £50 million in funding secured. Property Partner says investors are drawn to the benefits of increased liquidity through its resale exchange, with the security of ‘ring-fenced’ holdings that are separated from the assets and liabilities of the company (all account funds are protected by the Financial Services Compensation Scheme (FSCS).
Having entered the market two years ago with the lowest entry point in the market at £500, Property Moose has successfully opened up property investment to almost anyone by bottoming out this cost and allowing would-be investors to start their portfolio with nothing more than a tenner. The site has been popular with millennials who, for a handful of pocket change, can get a return on investment from rental income and capital growth. It’s allowed for much higher diversification for investors as a capital of £1000 could potentially grow their portfolio to 100 properties.
Property Moose has gone from strength to strength with 24,000 registered members in 90 countries. The platform recently marked a significant milestone, successfully exiting their first secured lending opportunity titled PMF A. The 79 investors in the loan note, which raised £160,500, received their original investment and the 8% fixed return upon the loan’s maturity date. Following the exit, 40% of clients immediately reinvested their capital into the platform’s latest loan note offering.
With the market recently being valued at £10billion, property crowdfunding has moved from the fringes of finance, to becoming a major player in the real estate sector. As it continues to rapidly change the way everyday people invest in property, those with dreams of investing, becoming a landlord or growing their savings have a real opportunity, no matter what their current income or age is. Millennials on the other hand, can rejoice in yet another defiance to be victims in a world that has priced them out of homebuying.
photo: Eduard Militaru