The global real estate crowdfunding market is expected to grow a CAGR of 33.4% between 2020 and 2028. The EU REC market size is currently at approximately EUR 7 billion, and with that growth rate, the EU market would be EUR 93.65 billion in 2028.
This stratospheric projection illustrates the potential of real estate crowdfunding. Stipulations protecting consumers and crowdfunding platforms provided by new EU regulations coming into play in November will foster legitimacy in the industry and draw the focus of new investors.
To determine what drives the crowdfunding community, BrikkApp recently spoke to five real estate crowdfunding industry leaders from Shojin, Reinvest24, Kuflink, Max Crowdfund, LendSecured.
New EU regulation bolsters the market
Faced with substantial industry growth, the European Union has decided to implement regulatory actions that will formalise the service provision process for crowdfunding and widen the potential pool of investors exponentially.
For Jatin Ondhia, Co-founder and CEO of Shojin, the regulations are a necessary step to gain new economic opportunities: “At times, the regulatory costs and process can become burdensome, but they are essential if we want this market to grow.”
Per the regulations’ due diligence requirements by platforms, investors will feel secure in their investment decisions. Terms on suitability and appropriateness will further enhance that sentiment. New passport and authorisation processes will make sure that platforms are held accountable for their listings and work in the best interest of their clients.
Under the new scheme, real estate crowdfunding platforms can collaborate seamlessly with developers and construction corporations across the European continent if their projects total under €5 million.
Given that the regulation works to rule out non-compliant practitioners, there will be fewer market participants—but those participants will present safer investment opportunities, according to the Latvian crowdlending platform LendSecured.
“We find it more complex to spot deals that suit the vetting process. The volume might be smaller, but you can be sure that it has the highest quality,” explains Nikita Goncars, CEO of LendSecured.
The unrelenting interest of new retail investors will bring liquidity to the market and entice developers.
Crowdfunding platforms increasingly make use of the power of collaborating
Shojin provides global investors with direct access to institutional-style debt and equity investments in the UK. Crowdfunding platforms like Shojin work best when they can balance the number of investors with a high deal flow. “Sometimes, there is an imbalance due to the economic and societal environment. This is where collaboration between platforms can be extraordinarily effective,” according to Jatin Ondhia, CEO and Co-founder.
As crowdfunding gains popularity, more and more high-quality platforms will operate in the industry. Increased cash flows and investments deepen the liquidity pool and broaden the range of projects that can meet investors’ and developers’ requirements.
Recently, most crowdfunding platforms have felt the market is too fragmented. To become a mainstream marketplace, the sector needs to attract a much broader crowd and cooperative market opportunities.
In addition, the associated costs with new EU regulations may leave several companies in a difficult position. Thus, collaborations of various platforms play a vital role in the sector. Collaboration is not simply a matter of costs but combining expert knowledge and business strengths: If the market specialists blend their skills and help each other out, this will lift the whole industry to a higher level. Potential joint areas include tech development and research to understand and predict the market’s evolution better.
The EU regulations hit the point of the time. Max Crowdfund, a Dutch crowdfunding platform, forecasts that if real estate crowdfunding continuously grows into the mainstream, cross-border investments and the international interest in the EU market will become commonplace. The new standards and the ability for crowdfunding agents to work seamlessly with developers all across the European continent ensure a fertile ground for the industry.
Interest Rates and Returns
A growing number of real estate platforms ultimately stimulate a higher output for aggregation platforms such as BrikkApp. For investors, it brings higher diversification between investment opportunities. From the current point of view, the size of the platform is becoming less important.
Still, the quality of the project (e.g., well-funded, location, housing prices) investors can crowdfund attracts enormous interest. If the quality of investments and returns will be the decisive factor for the crowdfunding community, this allows a fairer investment fund distribution across European real estate.
Due to the global pandemic, interest rates have been lowered worldwide to stimulate consumption. As a result, banks fear the trend going towards negative interest rates.
One of the downsides of the EU regulations could be a potential split between regulated and unregulated platforms. The latter could try to offer higher returns that don’t face restrictions by any legislation. Fortunately, this won’t stop regulated platforms from offering healthy returns, and it will establish them as more trustworthy than unregulated businesses in the long run.
Lastly, due to the global pandemic, interest rates have been lowered worldwide to stimulate consumption. As a result, banks fear the trend going towards negative interest rates.
“Facing the likelihood of negative interest rates, investors prefer P2P real estate lending platforms as a potential option for their funds. This happens because they could earn significantly higher returns,” agrees Narinder Khattoare. He is the CEO of Kuflink Group, a company developing and leveraging P2P investment models. Higher returns will positively impact the industry and create an enormous leverage effect for those who invest now.
“In our case, we are currently able to offer returns up to 16% because we are working on developing markets, with a big potential for capital growth. By developing most projects by ourselves, we are lowering the expenses as much as possible”, says Tanel Orro. Tanel is the CEO of Reinvest24, a real estate investment platform based in Estonia.
The new EU regulations will not be smooth sailing for every platform. For example, Max Crowdfund operates using blockchain technology, and banks and payment providers are still reluctant to work with the technology. Currently, Max Crowdfund can offer debt-based real-estate-backed loans to their investors.
“Once we have obtained the license per the new European regulation for crowdfunding platforms (CSPR), we will add equity-based deals and a secondary market,” reveals Mark Lloyd, CEO of Max Crowdfund.
The European crowdfunding real estate market shows promising progress. Particularly the Baltics and countries in Eastern Europe, including Estonia, Moldova, and Latvia, are attracting investors’ interests. “We see great potential in the real estate sector, as the competition is still low, due to the small size of the market,” concludes Tanel Orro from Reinvest24.
As soon as crowdlending platforms start to diversify their portfolio and collaborate with each other and developers alike, the alternative property market is ready to become a mainstream capital source.
Money laundering is a pan-European problem, with 90% of the continent’s biggest banks having been sanctioned for money laundering offences, new research by anti-money laundering (AML) experts Fortytwo Data shows.
The firm found that at least 18 of the 20 biggest banks in Europe - including five UK institutions - have been fined for offences relating to money laundering within the last decade, many of them within the last few years - an indication of how widespread money laundering has become.
Recent crises at the likes of ING, Danske Bank and Deutsche Bank only reinforce this impression, demonstrating how no bank is immune to money laundering sanctions, no matter how large.
All 10 of the biggest banks in Europe are known to have fallen foul of the AML authorities - HSBC, Barclays and Lloyds from the UK, French quartet BNP Paribas, Crédit Agricole Group, Société Générale and Groupe BPCE, Germany’s Deutsche Bank, Santander of Spain and Dutch bank ING.
Others to have been fined in recent years are the British banks RBS and Standard Chartered, Italy’s Intesa Sanpaolo SpA, UBS Group and Credit Suisse of Switzerland, Spain’s Banco Bilbao, Dutch institution Rabobank, and Nordea Bank of Sweden.
All five major UK banks - HSBC, Barclays, Lloyds, RBS and Standard Chartered - have been fined for money laundering offences. Earlier this year, Donald Toon, director of prosperity at the National Crime Agency, admitted in a Treasury Meeting that money laundering in the UK is “a very big problem” and estimated that the amount of money laundered here each year has now risen to a staggering £150 billion.
Banks and financial services companies have faced an uphill struggle to move onto more advanced AML platforms as they often attract a price tag running into tens of millions of pounds, potentially hundreds of millions once the cost of integration, operation and maintenance have been factored in.
More advanced augmentation platforms have moved the conversation on in the last few years, creating opportunities for companies to improve the efficiency of their AML processes at vastly reduced cost, while still using data stored in legacy systems.
Julian Dixon, CEO of Fortytwo Data, comments: “It is clear Europe’s largest banks are collectively struggling having problems when it comes to anti-money laundering standards. The increasing sophistication of the money launderers makes this an ever more difficult task.
“Money should not be laundered on their watch. However, standards must be maintained. The fact that almost all of Europe’s 20 biggest banks are known to have failed to comply with AML regulations is a troubling finding.
“These days, there are effective solutions to be found. Technology has reached a level where it can vastly improve the efficiency of suspicious activity detection and all major banks have a responsibility to embrace 21st Century solutions to this problem, rather than continuing with outdated legacy systems.
“The UK has an opportunity now to lead the way and set a higher benchmark for others. That £150 billion is known to be laundered here every year is a problem that needs to be addressed and if we can clean up our act, others will be compelled to follow our example.”
(Source: Fortytwo Data)
