The convergence of proptech (property technology) and crowdfunding has brought about a significant transformation in the real estate industry. This BOLD Awards blog explores the dynamic synergy between proptech and crowdfunding, unveiling how it’s reshaping real estate investment and making property ownership more accessible and inclusive than ever before.
Reshaping Real Estate Investment
Proptech and crowdfunding have individually disrupted traditional real estate investment, but their fusion is a game-changer. Digitized operations generate large chunks of datasets, improving decision-making beyond the more personal experience, expertise and knowledge that property developers and real estate investors have previously relied on.
Proptech simplifies the investment process and provides transparent data, delivered through easy-to-use interfaces for managing and tracking investments. This helps a wider range of more diverse investors make informed decisions and feel more confident, and thus grows the market size for developers and construction companies searching for funding. Anyone with a smartphone, an internet connection, and $10 can become a real estate investor.
Crowdfunding platforms can utilize proptech and provide a range of vetted real estate investment opportunities that enable:
- property developers and construction companies to raise money from everyday retail investors to complete building construction or refurbishment projects;
- investors of all sizes to access real estate opportunities that were once exclusive to high-net-worth individuals;
- people who cannot afford to buy their own home to still enjoy returns from property investments;
- retail investors to diversify their property portfolios with the inclusion of commercial real estate, and with cross-border investments in various countries.
Property developers and construction companies
These businesses constantly seek funding to capitalize their speculative plans for residential, commercial or mixed-use projects. The range of recent UK real estate crowdfunding projects extends from £4.2m to support a development of 87 new homes in an affluent commuter area close to London (through Shojin Property Partners), down to £60,000 that a local builder needed to refurbish an elderly terraced house in a former coal mining town in Wales (through Simple Crowdfunding).
Projects can choose to offer investors equity in a company set up for the sole purpose of an individual project, or peer-to-peer loan and repayment schemes offering fixed interest rates. There are everal factors to consider when making invetsment decisisons. Equity investments tend to provide a higher return, though also have a higher risk of delivering nothing at all. Crowdfunded loans are more secure, though higher security comes at a price of lower reward. Real estate equity investments have a set date by which projects have to be completed, which is a benefit compared to the open-ended nature of most equity investments in privately-owned businesses.
Another form of real estate crowdfunding, which is more common in the U.S., is for investors to pay the leasehold cost of a property and then receive a regular rental income from the tenant(s).
Democratizing real estate investment opportunities
At the top end of the real estate crowdfunding sector in the U.S., Grant Cardone, founder and CEO, created Cardone Capital to provide everyday investors access to the institutional-grade real estate deals that are normally reserved for only the largest investors. Cardone Capital acquires and manages real estate properties with a focus on both near-term income generation and long-term value creation. It has raised over $1.1 billion from more than 13,000 investors.
Non-homeowners can invest in real estate
Non-homeowners, alongside anyone else, can decide to invest in any number and combination of real estate crowdfunding opportunities that they choose. Minimum investment levels really can be as low as $10. Their investments can be in commercial or residential or mixed-use projects, and then enjoy real estate-linked returns while still paying rent for their own accommodation.
For some it can be a lifestyle choice. There are high fixed costs associated with buying and selling homes, and anyone who will be moving home quite regularly, such as digital nomads, could be better off by renting their own home and investing in alternative real estate.
However, in common with all real estate investors, their money may not be easily available in the short-term, if at all. The growing number of secondary markets is bringing more liquidity to equity investments, though money invested in loans can be hard to recover before the agreed repayment dates.
Cross-border real estate crowdfunding
By October 2023 the number of crowdfunding platforms that have received centralized authorisation to raise funding throughout the entire European Union had reached more than 60. The first German platform approved under ECSPR is Zinsbaustein, a real estate investment platform. EstateGuru based in Estonia, Urbanitae Real Estate Platform in Spain, Bricks in France and CF Real Estate in Lithuania are other examples that are also now able to raise funds across the EU for real estate projects.
Beyond Europe, platforms including SmartCrowd in the United Arab Emirates allow investors to register, confirm where they are a citizen, and pay into a digital wallet. Their real estate investments are then paid for from the wallet without repeated foreign exchange fees and delays.
Recent developments include the establishment of the Association of Real Estate Investment Platforms (AREIP). Its multi-national members aim to standardize their terms of business, terminology used, and levels of customer service. Members must deliver acceptable levels of transparency, confidentiality, professionalism, best practice and compliance, and behave ethically. Proptech certainly helps them meet these requirements.
Within Europe, the introduction of central authorization for real estate platforms to trade throughout the European Union appears to have triggered a period of consolidation. Acquisitions or mergers lead to economies of scale. In November 2023 it was announced that the Dutch platforms Kapitaal Op Maat, Max Crowdfund and Capital Circle plan to merge. In the same month, Walliance, Italy’s leading real estate crowdfunding platform, announced the acquisition of Lymo Finance, which was the first property crowdfunding platform founded in France in 2013.
The amalgamation of proptech and crowdfunding has ushered in a new era of real estate investment. This dynamic duo is democratizing property ownership, providing accessible investment opportunities, and transforming the way we interact with and benefit from the real estate industry. The potential for growth and innovation in this space is limitless, making it an exciting frontier for both seasoned and novice investors in the digital age.
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