Show me the money — how tech changed property funding forever
It’s touched virtually every other part of our lives, so it seems hardly surprising technology is altering how we finance development and trade assets.
Traditionally real estate finance and investment was seen as something only for those with deep pockets, but these days, secure, advanced online platforms are connecting borrowers seeking to raise capital with investors — large and small — looking for a healthy return.
So whether you’re a property developer seeking to fund a project, or someone keen to invest, here are just three of the options making headway.
What are these alternatives?
Crowdfunding | Properties or projects are advertised on crowdfunding platforms for investors to consider. These businesses must adhere to a strict Financial Conduct Authority code of conduct. In real estate, private equity crowdfunding means buying shares in properties with returns seen through rental income and any profit on sale.
Peer to peer lending, also known as loan-based crowdfunding | Here, investors lend funds directly to borrowers using an online platform. Loans are secured against properties, and investors see a return from borrowers who repay the loan, plus interest. Also regulated by the FCA.
Blockchain | Deloitte’s definition explains how blockchain “allows unique monetary data to be exchanged via a distributed ledger (a record book of all transactions). … This shared record, or ledger, is distributed to all participants in a network who use their computers to validate transactions and thus remove[s] the need for a trusted third party to intermediate. A copy of the entire blockchain is available to all participants in the network and transactions on the blockchain are time stamped, making it useful for tracking and verifying information. Ultimately, using blockchain platforms with smart contract functionality, it could become easier, safer and faster to buy and sell property.”
Who’s working in this area right now?
Sample of those offering investment opportunities:
Property Moose says it specialises in buy-to-let crowdfunding, buy-to-sell crowdfunding, private equity crowdfunding, and lending using money raised from its investor community. From as little as £100, people can put their money into a wide range of properties across the UK. Each sum is structured in an individual limited company, of which investors become either a shareholder or lender.
The House Crowd | As well as operating in property development crowdfunding, the Cheshire-headquartered, FCA-regulated business also runs a peer-to-peer lending platform. With typical peer-to-peer terms ranging from three to 12 months, offering returns of 9% per annum as the norm, capital is at risk if, for example, the borrower doesn’t repay the loan and House Crowd can’t sell the property for a sufficient amount to cover the loan.
Clicktopurchase | Selling property digitally, this London firm uses its own blockchain technology to record the bidder verification process, offers submitted and accepted, followed by the formation of online digital contracts. It says it has executed more than £197m of online property sales in the UK and Ireland.
Propy | In September last year, the California-based real estate start-up helped Michael Arrington, founder of TechCrunch, buy a $60,000 flat in Kiev, Ukraine: the world’s first property to be sold using the Ethereum blockchain. While advocates are keen to say these emerging platforms are — amongst other things — a way of democratising property investment, none of these options is risk-free. As ever, potential investors should show the usual diligence in analysing and assessing the best option for them.