A Modern take on Medieval lending
Posted on: 16 February 2018 by Crowd Lords
Crowdfunding might seem like a very modern, 21st century idea but it isn’t really. As far as property investment is concerned, in a way it goes right back to the construction of the great Medieval cathedrals in Britain and indeed Europe, where various ‘investors’ bank rolled the construction of these buildings.
The modern product is, however, a direct result of living in a digital world where money can be transferred with ease and financial products sold to investors with the click of a mouse.
According to the UK Crowdfunding Association (UKCFA) the definition of crowdfunding is a way of raising finance by asking a large number of people each for a small amount of money. Traditionally, financing a business, project or venture involved asking a few people for large sums of money. Crowdfunding switches this idea around, using the internet to talk to thousands, if not millions, of potential funders.
For many years a significant amount of property development and property investment in UK was funded through Joint Ventures (JV’s) either entirely, without any involvement of banks, or to establish the capital needed to enable access to bank lending.
Now with digital accessibility these investment opportunities are open to a wider pool of investors whilst enabling them to spread their risk across a diverse range of investments in real estate.
The UK needs more homes, both to buy and to rent, and capital is needed to fund the developments. While there are a few big players in the UK property development market, a significant proportion of developments for sale and to let are provided by small, independent, local or regional builders, who need capital to fund their projects, capital that is no longer available from the banks at reasonable rates.
Before crowdfunding took off, larger real estate developments were limited to institutional investors who had the necessary experience and the resources to do so. Now a much broader range of investors can get involved and are doing so.
‘Crowdfunding provides much needed debt finance for small developers and new property entrepreneurs and it is unlikely that this trend will slow down anytime soon. As interest rates remain low, it is expected that people will try to get a better return for their money and with a little bit more regulation crowdfunders will soon establish themselves as a long term dominant force in the UK property market,’ said Natalie Carter, a real estate associate at Mayer Brown International in London.
An analysis published in November 2016 of real estate crowdfunding published by the Investment Property Forum (IPF) describes how technology has facilitated the emergence of new approaches that might better meet investor aspirations in a climate of low interest rates and fewer traditional options.
The report adds that real estate crowdfunding offers greater transparency, as well as a reduced fee structure that enhances net returns. It describes what has happened as a ‘sprint’ rather than a marathon and that real estate crowdfunding is expected to continue with its rapid growth and likely to endure into the longer term.