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Brexit: The Implications for Property Crowdfunding and the Alternative Finance Sector

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In a chaotic and unpredictable world, the conventional wisdom proves wrong more often than most realise.

The outcome of last week’s EU Referendum is one of the more momentous examples in recent memory, with the whole world seemingly in shock that narrow polling leads can turn out to be statistically insignificant.

The Prime Minister promised a leave or remain vote to shore up support within his own party in advance of a re-election campaign last year.  Unlike many politicians, he actually kept his promise, only to be stunned by the result and forced to resign.

The best laid plans of mice and men often go awry…

But in all chaos there is opportunity and often a silver lining.

Politicians and pundits are prone to exaggerate, stereotype, and tell us all that the world is going to end in an effort to galvanise their audience.

Let us take a step back and analyse what impact a Brexit is likely to have on property investment in the UK as well as on the alternative finance and fintech sectors of which property crowdfunding is a sub-set.

Impact on property prices and rental yields

Any major changes in immigration policy and access to European financial markets will not take place for at least 2-3 years while the precise details of Britain’s divorce from the EU are worked out.  Fears that the London market or the wider UK property market are going to crash as a result of Brexit are highly unlikely, as the UK property market rests on solid fundamentals regardless of EU political considerations.

In times of uncertainty, most shrewd investors hold on to prime property assets that produce stable and predictable yields as a store of value.  There may be some contraction at the highest levels of the London market in the short-term, but on the other hand, there will be plenty of foreign investors taking a 10-20 year view that find a temporarily weak pound to be a great reason to by into London at 10% less than one could at the end of last year.

Regulation

The UK was the first country in the world to develop bespoke regulatory frameworks for the alternative finance and  equity crowdfunding sectors. Several jurisdictions around the world are now looking to emulate the FCA’s practical and business-friendly approach but it is proving more difficult than anticipated.   What is happening instead is that alternative finance providers are being forced to fit themselves into existing regulatory frameworks conceived decades or even nearly a century ago.

Most people agree that the FCA got it right in the UK and until last week’s vote, there was fear that meddling from Brussels may dilute the impact of this ‘soft touch’ regime.  It now seems likely that we can rule this out.

Passporting rights and pan-European expansion

The flip side of being free from a traditionally more onerous approach to financial regulation from Continental Europeans is uncertainty surrounding the ‘passporting rights’ of UK firms doing business in other EU countries.  In short, passporting rights allow a firm that is regulated in one EU country to do business in another using their home country regulatory permissions.  This significantly reduces the red tape of having to acquire and maintain permissions to carry out regulated activity in the financial services industries of those countries.  How this will shake out over the next few years as the divorce proceedings play out remains to be seen.  One can only hope that cooler heads prevail and both sides will see the benefits of free trade and focusing regulatory burdens on protecting consumers rather than politics and the policies of protectionism.

The UK has always adapted its approach and policies to remain prosperous in a changing world, and there is no reason to believe that it will not do so on this occasion.

We here at Property Crowd believe that over the long term, property is superior to all other asset classes and that quality property crowdfunding investments in prime locations – sourced and managed by professionals at the top of their field – will be resilient in challenging market conditions and indeed outperform the market over the long-term.

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