Change is inevitable: so why don't we like it?
An article published in The Times recently referred to a study by the Royal Institute of Chartered Surveyors (RICS) examining the propensity of crowdfunding platforms to further inflate house prices.
The argument from RICS, is that crowdfunding enables more people to invest in property through pooling individual’s funds, which in turn could drive house prices up further. The focus of their argument is that the general public could invest up to £50 billion in buy-to-let property through crowdfunding; however trends appear as though this is inevitable, with banks lending money for buy-to-let mortgages alternatively. The benefit of crowdfunding for property investment, is that an individual investor with a limited budget for property investment can invest small amounts of money in different segments of the property market; thus diversifying the investor’s risk across the buy-to-let market.
The key change when using crowdfunding to finance a property purchase is that debt is replaced with equity, eliminating the chance of investors being in negative equity.
My argument is: why should we exclude anyone from investing in the growing buy-to-let market? Particularly when the Bank of England revealed recently that the majority of the MPC want to retain interest rates at a low, reducing returns for savers. The Times article appears to be lesser more than “fear of the unknown.”
It is well known that one of the most influential factors in the financial crisis was the low deposit requirements and the gradual hike of interest rates in the mortgage market (and the over-confident reaction to this by credit ratings agencies who assumed that mortgage backed securities were of the highest quality).
Post financial crisis, the need for an injection of liquidity into the property market has been recognised and deposit requirements to purchase a property have increased, however this has not reduced the price and demand for property.
Whilst higher barriers of entry to the property market and low interest rates have enabled economic recovery; this does not help the average saver whose propensity for returns on savings are lower and barely in line with inflation. Nor does it help those wanting to take advantage of the property market without sufficient funds (such as those saving to be first time buyers).
Crowdfunding enables these people to take advantage of the capital returns of the property market and the regular income from tenants and injects more liquidity into the property market than the banks can afford.
The use of equity in crowdfunding has the potential to reduce and even eliminate debt in the property market, making it an even more reliable investment. Rather than banks being at the helm of finance, crowdfunding offers The Little Person the chance to take control in financing the property market nationwide, as well as their local area, (also eliminating potential negative equity) is that not yet another positive outcome of crowdfunding?
I think that change is a good thing, and to follow the Chinese proverb “the only thing in life that never changes; is that everything changes.”
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