Before 2012 property crowdfunding platforms didn’t exist but now their popularity is greater than ever, including for those buying new houses. Frazer Fearnhead looks at some of the reasons why…

Up until April 2012, when the JOBS Act came into effect, it was against the law to use the crowdfunding business model in the United States. It was similarly thought to be illegal in the UK thanks to regulations surrounding collective investment schemes. However, one property crowdfunding platform that did begin trading in March 2012 was The House Crowd. They used some precise exemptions in the Financial Services and Markets Act to establish themselves as the first property crowdfunding platform in the world. Not long afterwards, the Fundrise platform in the United States also began.

Since then, regulations have been relaxed and crowdfunding platforms of every type have thrived, property crowdfunding most of all, something which could be of particular interest to anyone buying a new house. Across the world, in places as diverse as the Middle East, Singapore, Italy, France and Egypt, property crowdfunding has become big business in a relatively short period of time.

As shown by figures released by Massolution, who carried out research into property crowdfunding, currently $2.5bn is being raised annually in this sector. A hundred fold increase is further predicted by 2020 meaning that each year $250bn* will be raised through crowdfunding platforms.

It’s hoped that by relaxing regulations, crowdfunding will also help boost the economy especially as more people appear to be dissatisfied with banks and other financial institutions. The crowdfunding industry in the UK totalled £267m in 2012. It increased to 666m in 2013 and then to £1.74bn in 2014**. Crowdfunding in the UK is predicted to generate around £5bn in 2016 and then reach £36bn within ten years***

All crowdfunding platforms in the UK are authorised by the FCA. To assess their ability to operate, they first have to go through a due diligence process which ensures the public can be confident they’re dealing with a valid, well-run company.

The growth of crowdfunding has also been helped by advances in technology. It’s allowed property investors and developers to access a much wider audience. This, in turn, means they can gain publicity for projects and often raise capital quickly without having to rely on the usual circle of family, friends and banks. Within a few hours, hundreds of thousands of pounds can be raised through crowdfunding for a developer. This contrasts with the weeks or possibly even months of waiting that comes with applying for a bank loan.

Crowdfunding’s ability to generate smaller amounts of money loaned by a large number of investors has brought huge benefits to landlords, property developers and investors whilst also making it highly accessible to many, including new house buyers. As those investing and those looking for investment continue to see the benefits of crowdfunding, it seems that this peer-to-peer method of raising money is set to flourish for the foreseeable future, at the very least.

*Massolution CF-RE 2015
**Nesta and University of Cambridge Survey November 2014
*** Research and Markets UK Market Peer to Peer Lending Facts and Figures 2015

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