CROWD INVESTMENT

Privileges for the crowd in jeopardy

  • Why it matters

    Why it matters

    Changes to financing provisions for real estate under the Capital Investment Act could adversely affect crowdfunding or crowd investing platforms in Germany.

  • Facts

    Facts

    • The crowd investing market in Germany grew by 220 percent annually between 2011 and 2015.
    • The government is considering getting rid of the prospectus requirement for stocks and bonds of up to €1 million if they are sold via crowdfunding platforms.
    • Proponents of crowd investing argue that it is an appealing financing instrument for young companies and that unnecessary bureaucratic hurdles should be removed.
  • Audio

    Audio

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Eine Neubausiedlung in M?nchen, am 21.06.2015.
German real estate is attracting billions of euros each year, and some fear a bubble might be building. Source: Mauritius Images

The federal government appears a fan of online lending platforms. “Here in Germany, we need to learn to let delicate saplings grow,” the coalition government said to explain its relief for swarm financing – or crowd investing – in 2015. This is why financing with certain instruments via credit platforms is not subject to prospectus requirements. A prospectus is a formal legal document providing details about an investment offering.

But following an evaluation of the Small Investor Protection Act, the government apparently sees a need to correct these exceptions in the case of real estate financing.

“Given that sufficient alternative financing options are available for real estate projects, the federal government could consider excluding financing for real estate from the scope of the Capital Investment Act,” the government wrote in response to a request from the Green Party obtained by Handelsblatt.

The crowd investment market in Germany is still small, but it’s growing rapidly. According to the evaluation report, between 2011 and 2015 the market grew by 220 percent a year, reaching a total financing volume of €110 million, or $117.6 million. Other experts estimated an even higher figure. Two-thirds of this investment went to startups, and €36 million to real estate.

The federal government is critical of crowd financing’s growing importance for real estate. This is because facilitated financing could lead to overvaluation in real estate markets and trigger systemic financial crises, the government officials said in their evaluation.

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