UK: Crowdfunding For Real Estate - Will It Work In The UK?

Last Updated: 17 September 2013
Article by Jennifer Chappell

What happens if you and your business partner want to invest in commercial property but don't have funds and can't find a bank to lend? Recently, an alternative to the institutional lender has presented itself which could work for property investors - "crowdfunding".

The theory is that instead of raising funds from a bank or wealthy investors, you raise the equity from hundreds of your contacts and perfect strangers, each investing a very small amount in the business or property.

Does crowdfunding work for property investment?

It's already happening overseas for funding real estate. In Colombia, the first crowd-funded sky scraper has been built. A company was formed to build one of Colombia's tallest buildings as part of the regeneration of its capital, Bogota. A high profile ad campaign was launched in the city encouraging everyone to invest in Bogota's skyscraper development in return for a share in the profits.

The building, known as BD Bacata, consists of two towers of mixed use residential and commercial, with 66 floors and 114,384 m2 of skyscraper funded entirely by the people of Columbia. This is an amazing example of a community pulling together to create something incredible from nothing. Click here for proof.

Crowdfunding for real estate has attracted major players in the USA, such as FundRise and Realty Mogul. The basis for FundRise's crowdfunding platform is that local people can invest in a company that buys empty or rented commercial property.

This is being marketed as a community activity with the investor contributing and benefiting from the regeneration of the local neighbourhood. Investors can have their say in who rents the property and a share in any return it produces.

Will it work in the UK?

So how would you go about setting up a crowdfunded property venture in the UK?

  • Someone wanting to buy commercial property would use a crowdfunding website, also called a "platform";
  • They post a business plan plus property details on the platform and set a target of money to be raised; then
  • Interested members of the public or 'crowd' then pledge various amounts and the property is acquired

Most platforms operate on an all or nothing basis, whereby if the target is not reached then the money is not transferred. The platforms make money from either taking a cut of the funds raised or charging a flat fee.

One successful example of equity crowdfunding in the UK is the pub chain "Brewdog". It set up its own online platform, and since 2011 has raised millions of pounds offering a mixture of shares and beer-related rewards. Brewdog's philosophy is "No fat cats. No pretentious investment bankers. No venture capitalists. No overbearing parent company. Just people who care passionately about great beer."

There are already a handful of crowdfunding websites up and running in the UK. In particular, crowdfunding for UK residential buy-to-let property seems is making its debut. Investors are pulled together to purchase property assets allowing them to control, rent or sell with full day to day control of the investment.


The biggest problem for the UK is the lack of crowdfunding regulation. Overseas, the US government dealt with the issue by passing the Jumpstart Our Business Start-Ups Act 2012 (or "JOBS Act" as its known).

The JOBS Act sets a yearly aggregate limit on the amount each person may invest in certain small public offerings, tiered by the person's net worth or yearly income. The JOBS Act removed some company regulatory and disclosure requirements. It also lifted the ban on general solicitation and advertising in specific kinds of private placements of securities.

In the UK, "debt" crowdfunding activities must comply with the Consumer Credit Act but it is not yet regulated by the Financial Conduct Authority. There are issues for equity crowdfunding surrounding compliance with the Companies Act and Financial Services & Marketing Act. Loopholes are currently being exploited by crowdfunding platforms requiring investors to become online "members" in order to avoid breach of this legislation.

Until the Government deals with crowdfunding through legislation or regulation, the crowds may remain dubious about this form of investment. However, the US market has proven that crowdfunding is here to stay. According to Forbes Magazine, US equity crowdfunding was set to top US$3 billion in 2012.

So perhaps for UK real estate crowdfunding (from residential buy-to-lets to city skyscrapers), you could say the sky's the limit?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Jennifer Chappell
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