German real estate crowdfunding to triple

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Germany’s real estate crowdfunding market is expected to triple in size this year, now that the government has decided not to abolish it, according to those who track the market.

In the first five months of this year, 51 real estate projects raised €52m via crowdfunding, according to the aggregation site www.crowdinvest.de, up from €40m in 2016 and just half that in 2015. Since real estate crowdfunding broke onto the scene in Germany in 2012, three companies have gone on to account for three-quarters of business: Zinsland, Exporo and Bergfürst. Since then, around €1.2b of real estate projects in Germany have got around 10% of their financing via crowdfunding, according to iFunded.de.

So far this year, Berlin has ousted Hamburg as the favourite real estate crowdfunding site, collecting more than €24.8m via crowdfunding. Hamburg comes a close second with €18.5m. The municipality of Weißenhaus took third place, with around €7.5m.

Residential projects account for the lion’s share of real estate crowdfunding, with €95.6m, followed by commercial projects with €27m, according to iFunded.de.

Carl Friedrich von Stechow, head of real estate at the Crowdfunding Association, and the co-founder and CEO of Zinsland described the government’s move last month as ‘a huge relief’: ‘Crowdfunding helps finance mid-size real estate developers that banks are not interested in funding. If the government had shut down real estate crowdfunding, it would have unnecessarily deprived the market of a well-working solution,’ he said.

The opponents to real estate crowdfunding had argued that real estate should be excluded from crowdfunding exemptions because real estate projects do not foster innovation as crowdfunding projects are supposed to and because crowdfunding could potentially trigger a real estate bubble, arguments that were dismissed by the Finance Committee.

Nonetheless, the Finance Committee decided last month to maintain the current restrictions imposed by the Kleinanlegerschutzgesetzt (KASG) whilst deciding against raising the threshold of fundraising requiring a prospectus from €2.5m to €5m, and in favor of keeping the crowdinvesting ceiling per project per retail investor at €1,000, or €10,000 for a qualified investor.

The German Crowdfunding Association has made it clear that it would like to see the €10,000 investment cap on crowdfunding abolished, so that investors with larger disposable incomes are able to freely use crowdfunding platforms in Germany, as they can already do in many other countries. However, this is not yet on the cards. Karsten Wenzlaff, founder and director of the German Crowdfunding Association, told REFIRE that ‘it would make sense to push the project limit to €5m, in accordance with the European Commission proposal on the European Capital Market Union’.

Real estate crowdfunding only accounts for a small share of the market, according to Markus Kreuter, team leader of Debt Advisory at JLL in Frankfurt: ‘However, once you take into account the senior loan, which typically accounts for around 60% of the capital, 20% to 30% equity and then 10% which comes from crowdfunding, that equates to between €200m and €350m of total investment,’ he said.

When the Kleinanlegerschutzgesetz (Small Investor Protection Act), regulating crowdfunding came into force in Germany in July 2015, it was designed to protect investors in the grey market and to make it more transparent. To a large extent, it has been successful.

According to a recent study commissioned by iFunded.de, which focuses on real estate, whilst 17% of Germans are aware that they can invest in real estate via crowdfunding, only 13% of them are inclined to do so.