Real Estate Crowdfunding in Spain: Current Regulatory Framework and Future Trends

Real estate crowdfunding has emerged as an attractive alternative for those who wish to diversify their investments or access real estate projects that would otherwise be inaccessible. In Spain, this sector has experienced remarkable growth, but what is the legal framework that regulates it and what are the prospects for the future?

The Current Legal Framework

Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European providers of crowdfunding services for businesses, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937, regulates crowdfunding platforms in Spain. This Regulation establishes a solid legal framework to protect investors and ensure the transparency of operations.

This European regulation came into force approximately two years ago, and it is mandatory that all Spanish platforms have adapted to it and obtained the appropriate authorisation from the CNMV.

With the new regulation, crowdfunding platforms (now called crowdfunding service providers) acquire a ‘passport’ that allows them to offer their services in any country of the European Union, thus promoting a single and competitive market.

Likewise, this regulation introduces the possibility for platforms to manage their investors’ loan portfolios in a personalised manner, provided that this management is limited to executing the orders received and does not include investment recommendations. Platforms may not provide financial advice.

Platforms may provide spaces where investors can express their interest in certain projects or financial instruments, without this implying an obligation to buy and sell. To protect investors, an initial assessment of their financial literacy will be required and a maximum investment limit per project will be set to avoid excessive concentrations of risk.

Project promoters will be linked to the financing offers published on the platforms, thus ensuring legal certainty for investors.

Less experienced investors will have a cooling-off period of four calendar days to reconsider their investment decision. Strict rules are established to avoid conflicts of interest between crowdfunding service providers and their investors.

The new regulation introduces the ‘noticeboard’ as a tool for investors and projects to meet, provided that transparency is guaranteed and misleading practices are avoided. Investor protection measures, such as suitability tests and investment limits, are established in order to ensure an adequate level of protection.

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Legal aspects of crowdfunding for startups

In Spain, crowdfunding is regulated by the Law 5/2015 of April 27, on the Promotion of Business Financing. This law establishes the requirements for crowdfunding platforms.

Associated Risks

Investing in real estate crowdfunding carries a number of inherent risks that every investor should consider. Beyond the possibility of losing the total investment, there are other factors to consider. Property valuations, for example, can be subjective and vary depending on various market factors, such as changes in interest rates or economic fluctuations. Also, real estate projects often take longer than expected to complete, which can lead to delays in realising returns.

In addition, the management of real estate projects is in the hands of developers and managers, whose experience and skills can have a significant impact on the success of the investment. It is essential to carefully assess the track record and reputation of these players before making a decision.

It should be borne in mind that crowdfunding platforms operate in a less regulated environment than traditional banking, which exposes investors to higher risks. The lack of transparency and the asymmetry of information between entrepreneurs and investors aggravate situations such as insolvency or lack of liquidity. It is essential to ensure that the chosen platform is transparent in terms of project selection, fees and risk management.

Trends and Future Prospects

Real estate crowdfunding in Spain is in a phase of constant evolution and growth. It is foreseeable that new trends will consolidate and emerge in the coming years. On the one hand, we are likely to see increased regulation of the sector, with the National Securities Market Commission (CNMV) introducing new rules to ensure greater investor protection and even stronger transparency. In parallel, the supply of real estate crowdfunding products will diversify, with the emergence of new investment models such as crowdfunding-based real estate investment funds (SOCIMIs).

Increased competition among real estate crowdfunding platforms will also be a key factor. This increased competition will directly benefit investors, who will be able to access better conditions and a wider variety of projects. In addition, the integration of disruptive technologies such as blockchain and smart contracts will revolutionise the way transactions are carried out in this sector, offering greater security and transparency.

In summary, the future of real estate crowdfunding in Spain looks promising, with an increasingly mature and sophisticated landscape. However, it is essential that investors continue to educate themselves and diversify their investments to mitigate the risks inherent in this type of asset.

Conclusions

Real estate crowdfunding offers an interesting opportunity to diversify the investment portfolio and access exclusive real estate projects. However, it is essential to understand the legal framework, associated risks and market trends before making an investment decision.

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