It seems a little bizarre to suggest that a new and innovative way of raising funds could actually be a threat to the market in which it operates. However, this may seem to be the case with regards to crowd funding and the UK property market.
To those who have not yet ventured into the crowd funding arena it might seem a little bizarre to suggest it could impact prices to the detriment of investors. After all this is a relatively new area of the investment arena although in all honesty it is catching on very quickly.
Part share in properties
As new and more innovative property crowd funding websites emerge on a regular basis it is now possible to take a stake in an individual property for as little as £50. This will see you receiving a “slice” of any rental income as well as the opportunity to cash in your share of the property further down the line. Obviously nothing is set in stone, as property markets go up and down, but the cumulative impact of property crowd funding may pose a threat further down the line.
One of the more prominent property crowd funding websites managed to raise £500,000 for a London property acquisition in less than 35 minutes. This is a phenomenal result although it is not in isolation as other similar situations have been documented. The range of individual exposure to these property transactions will obviously vary depending upon the underlying individual’s financial situation but it is attracting the attention on relatively small buyers.
Pushing prices higher
At a time when first-time buyers, not only in London but across the rest of the UK, are struggling to climb aboard the property ladder, property crowd funding poses yet another hurdle. In a similar fashion to the buy to let market, where first-time buyers are forced to rent due to the affordability factor, more demand for UK property (wherever it comes from) will push prices higher.
There is already evidence that alternative and innovative funding sources are squeezing prices higher and the ability to invest relatively small amounts in individual properties is likely to catch the attention of more people in the future.
What can be done?
The simple dynamics of any property market are supply, demand and relative affordability, all factors which are affecting first-time buyers in the UK. At a time when experts seem to be trying to talk down the UK property market we have increased demand from buy to let investors and now the property crowd funding arena.
The reality is that unless governments introduce restrictions, or indeed build more new properties, we will likely see a continued squeeze in prices. This has the potential to turn into a self-fulfilling prophecy as fewer first-time buyers will be able to afford their own property. This will force more and more towards the buy to let arena and perhaps the property crowd funding option.
UK property prices seem certain to move higher in the longer term and with wage increases minimal at the moment the gap between the price of homes across the UK and the affordability factor can only widen.