If you look back to 2008 this will forever be seen as a time of over exuberance in the banking industry which ultimately led to the collapse of the property market and the worldwide economy. For many years the banking industry has been head and shoulders above any other business sector in the world and allowed to do anything it pleases in the knowledge there is nowhere else for customers to go. Indeed, as we saw in the aftermath of 2008, governments around the world were forced to inject billions of dollars into the banking system as well as bailing out struggling banks on an individual basis.
However, is crowdfunding a potential challenger to the traditional property lending market?
The UK mortgage market continues to grow despite the fact there are concerns about the economy in the short to medium term and even the U.K.’s membership of the European Union. We recently heard news of a prominent crowdfunding platform raising £1 million for a deal in the Manchester residential market. It may take some time to convert traditionalists but is there potential for the crowdfunding industry to miss out the middleman, i.e. the banks, and connect lenders and borrowers?
One issue in favour of the crowdfunding platforms is the transparency of each transaction which is publicly displayed along with the relevant terms. There were concerns in the early days about the regulatory environment and the fact that documentation may not have been as “robust” as in traditional markets. The situation has certainly changed over the last few years with a greater regulatory burden but if anything this has increased demand for crowdfunding and offers a number of opportunities for property investors.
The whole idea of buying a part share in a property development is to spread the risk of what might be a relatively small amount of capital. Even though it is possible to acquire part shares in an array of other properties via the traditional route there may well be additional costs involved. Crowdfunding platforms work on very tight margins and very large turnover and the fact that the majority of the work is done automatically online cuts back on operating costs. Therefore, it is possible to acquire a whole range of shares in various property developments using crowdfunding platforms.
The main drawback for anyone looking at investing in property via the crowdfunding route is the lack of advice. In many ways these sites are “execution only” which means that any transactions you agree (within a regulatory framework) are your choice and your choice alone. The situation is very different when looking to acquire part shares in property developments with advice often available and somebody there to speak to.
If you are confident, you are knowledgeable and you know what you are doing then perhaps property investment via the crowdfunding route could be something for you? However, if you would prefer somebody to hold your hand and be there should you require assistance and have any questions then would the more traditional property investment route perhaps be more applicable?