What is crowdinvesting?

When Ahmad Ghanem founded Veil Garments, he was concerned that venture capital firms would push growth too hard at the expense of sustainability. So, the then-26-year-old American designer decided to use crowdfunding to start his e-commerce business.

In 2015 and 2016, he raised over $69,000 on Kickstarter to begin the production of his invention: cooling and water-resistant hijabs.

The breakthrough of crowdfunding as a financing option began around the turn of the millennium with the help of the internet. Since then, this marketplace has grown rapidly, evolving into segments ranging from social donations to investing through equity crowdfunding.

Equity crowdfunding, also known as crowd investing (P2P finance respectively person to person financing), is now also used in the area of real estate investment, whereby supporters receive shares in the property.

Overview

Crowd investing explained simply
Real estate financing via crowd investing
Legal framework
SUKUUK: real estate crowd platform

Crowd investing explained simply

Crowd investing, or crowdfunding, uses the internet to raise funds by having a large number of people pledge a small amount of money to a business, project, or property. This flexible, small-scale, and liquid type of financing offers an alternative to the traditional way of raising money through banks or credit institutions.

Crowd investors are responsible for deciding where their money goes and where it bears fruit. The democratization of financial investments and the opportunity to have a say in where capital flows without the influence of profit-oriented investment banks make crowd investing particularly attractive for private investors.

To enable the crowdfunding process and the interaction between providers and interested parties, a profile of the project or object to be financed is usually created on a website. Funds are collected via these crowd-investing platforms.

Each platform has a payment service provider that carries out the necessary transactions between investors and project operators (issuers). These payment service providers guarantee secure and legally verified administration and processing of investment funds.

Real estate financing via crowd investing (equity crowdfunding)

In particular, real estate crowd investing is enjoying growing popularity, especially among first-time investors and average earners. The reason for this is the ability to invest small amounts of money in multiple projects to create a diversified portfolio.

According to Statista, real estate crowd investing reached US$822 million (€709 million) in 2020, the highest transaction value among European crowdfunding platforms.

Crowdfunding transaction values in Europe (excluding the UK) in 2020 by type

In a nutshell, individuals involved in reward crowdfunding donate to a project or business in return for a non-financial reward, such as goods or services, to be given at a later date; equity crowdfunding raises capital from the crowd by selling shares in an unlisted company; and donation-based crowdfunding is used to raise funds for a charitable cause (i.e., with no material or financial return).

The Crowdinvest Market Report reports that in 2020, real estate crowd investments in Germany amounted to €254.9 million and helped create 2,721 new residential units.

Legal framework

On November 10, 2021, a new regulation on European crowdfunding service providers (ECSP) for companies came into force across the European Union (EU). The regulation establishes uniform rules for the provision of investment- and credit-based crowdfunding services related to corporate finance.

Investors on crowdfunding platforms benefit both from an aligned and improved model of investor protection based on clear rules about information disclosure and risk management and from having harmonized supervisory powers for the national authorities overseeing the functioning of crowdfunding platforms.

In Germany, Kleinanlegerschutzgesetz secures the rights of crowd investors. Among other things, it stipulates that, when investing more than €1,000, an investor must assure that they either have assets of at least €100,000 or that they invest a maximum of two months’ salary (net). This is to prevent investors from getting into financial difficulties.

The German Asset Investments Act also applies to domestic, publicly offered investments. For example, an asset information sheet (in german Vermögensanlagen-Informationsblatt abbreviated VIB) must contain all factual and legal information to give investors a sufficient basis for their personal assessment.

SUKUUK: Germany’s first ethical, sustainable, and safety-oriented real estate crowd platform

SUKUUK was specially developed for investors who want to invest in residential real estate in Germany in an ethical, sustainable, and security-oriented manner.

Investors can become crowd investors from as little as €250 and select one or more properties on the platform, taking into account the term and rental yield. Independent experts make a pre-selection to ensure that only real estate objects that have been vetted and found to be good are offered.

As soon as a real estate investment has collected the full funding amount, the house or apartment is purchased. During the funding phase, a payment institute certified by the Federal Financial Supervisory Authority (in german Bundesanstalt für Finanzdienstleistungsaufsicht abbreviated BaFin) keeps the paid-in investments.

A trust company represents the interests of investors. In addition, the investments are secured by means of a security land charge in the land register.

As a result, the real estate customer now regularly buys shares in the property from the crowd investors until the customer owns them all. During this phase, the new owner does not pay capital interest for shares that have not yet been purchased, but they do pay property-related rent to the crowd investors.

SUKUUK differs from conventional real estate crowdfunding platforms (with terms of around 3-5 years) in that it has longer terms, as existing properties are usually financed over terms of around 10–30 years. But customer (Homebuyer) payments don’t only take place at the end of the project; they occur from the first month in the form of repayment plus rent payments.

Wealth accumulation made easy and personal

Building wealth in an ethical, sustainable, and security-oriented manner is not that difficult. You can find more exciting articles about money and real estate via this link.

Of course, our team will also be happy to answer your questions in a personal meeting. Contact us at info@sukuuk.com.

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