BrikkApp - The Czech search engine of real estate crowdfunding platforms
Crowdfunding, the practice of funding a project by raising small amounts of money from a large number of people, is becoming an increasingly popular and versatile tool in today’s digital world. For the past several years, it has also been making inroads into the global real estate market, with crowdfunding platforms being set up all over Europe. Prague-based Brikkapp is a relatively new application which mainly serves as a real estate crowdfunding search engine. I spoke to BrikkApp founder and CEO Jan Večerka to find out more about BrikkApp and the crowdfunding approach to the property market. I began by asking him how exactly crowdfunding in real estate works.
“From a technical perspective it is very similar to standard crowdfunding. By that I mean that you have an online platform which connects to different users - the project owners on one side and individual investors on the other.
“In real estate this means that the project is a real estate investment opportunity. It could be a loan for a real estate developer or an equity investment into an existing property.”
BrikkApp is still a relatively new company, which you founded together with your sister Jana. How did the idea to create it come about?
“Basically, it came about a few years ago. We became really intrigued by the idea of developing a crowdfunding real estate platform. However, as we did more research, we found out that there are already several such crowdfunding platforms in Europe and that it is difficult to find reliable information about the market.
“In real estate this means that the project is a real estate investment opportunity. It could be a loan for a real estate developer or an equity investment into an existing property.”
“We thought to ourselves that it might therefore be more valuable to focus on the whole market and create a platform where the user can find all of the necessary information about the real estate opportunities compare them and later invest into several platforms through one dashboard.”
You have explained how the idea of BrikkApp came about and what you wanted to do, but let’s say that someone has heard about crowdfunding in real estate and wants to use your app. How would they go about it?
“Right now, our user can go on BrikkApp and search for information about the real estate crowdfunding market. We have a really interesting blog where they can gather relevant insights. If they register they also get access to reports on market developments via our dashboard and they can search for crowdfunding platforms using our ‘crowd scanner’. Right now, we are building some comparison tools as well.
“The next step that we want to introduce, and in this regard we already have the technical solution, but we cannot yet do it legally, we want to introduce the option of investing via BrikkApp. For that we need a license and we are currently working on that, so that we can legally offer financial services.”
Is it possible to say who the typical real estate crowdfunding user is?
“I think it is a big trend for the generation between the ages of 25 to 40. There is a considerable change there when you compare them with their parents who, if they want to invest, will do so through their financial adviser and some kind of fund. Younger investors tend to invest online. The Robinhood app is a great example of that. This age group is also our target area for new users.”
What is the benefit of getting involved in real estate crowdfunding? Do you get a stake in a property and then a return, or how exactly does this aspect work?
“You do not necessarily take a share of the property. That depends on what you invest in. It could be that you become a shareholder of the company that owns the property if it is an equity investment.
"This is where we see our role – to help the user orientate themselves through the market.”
“However, our data suggests that most investment opportunities are in-depth instruments. This means that the developer fundraises money for new development or refurbishments [of property]. This, I would say, is the biggest part of the market.”
Does this mean that real estate crowdfunding has the potential to change the dynamic of very wealthy people, or business entities being in control of developers, precisely by introducing a large group of people into the developer model?
“I would say so. If there is a normal real estate development project, 50 to 60 percent of that is funded by the bank and the rest (40 percent) needs to be financed from other sources. The equity is the most valuable asset for every developer. They try various methods to increase their equity which would enable them to work on more projects. In the past, the only way to do that was to finance it through investor loans from private investors.
“Now, however, part of this equity can be financed from real estate crowdfunding. That is a great tool for people to benefit from investment opportunities which were previously open only to very wealthy individuals.”
We have spoken about how real estate crowdfunding works and what the benefits of it can be, but how big is the risk factor for an investor?
“There is a risk, especially if you are investing into something with a higher return. Usually, the yield in real estate crowdfunding opportunities is between 6 to 12 percent, or even higher, so you are investing into something where a risk is involved.
“On the other hand, the risk-to-return ratio in real estate crowdfunding, from my perspective, is really great.”
Do you use crowdfunding in real estate yourself?
“Yes, of course. The first time I came across a real estate crowdfunding platform was about five years ago. I really liked the idea of going on a platform and clicking on the property you want to invest in. I really loved the idea and chose to invest. I chose one British platform and that was my first investment in this area.”
On your website, you say that in order for the market to really prosper, the market will need to become more transparent and that platform aggregators like BrikkApp can play a role in this. Could you tell me a bit more about how BrikkApp can help in this respect?
“There have been many platforms which started their business and it turned out that their business model was not sustainable, so some of them go bankrupt. For a user this environment can be confusing. If you have more than 150 platforms all around the world and you are new to the market it is difficult to decide where to invest. This is where we see our role – to help the user navigate easier through the market.”
If we move on to the Czech Republic, a few days ago I was checking out crowdfunding opportunities in Prague on your app and came across two providers. How big would you say that crowdfunding in real estate is in Prague compared to other parts of Europe right now?
"There are states such as the United Kingdom where billions of pounds have already been invested by using this method"
“It varies by country. There are states where real estate crowdfunding is very popular, but when compared to the real estate market as a whole it still is a niche market.
“However, there are states such as the United Kingdom where billions of pounds have already been invested by using this method. There are also countries, for example Poland, where it is not really feasible to build a real estate crowdfunding platform due to the regulation. Poland has one or two platforms, but they are not really very scalable I would say, they have not raised money for many projects.
“Here in the Czech Republic crowdfunding in general is quite popular. Crowdfunding platforms in real estate have evolved here, but there are still few and their struggle right now is to basically educate the market, that it is another good way in which to invest their money.”
How has the coronavirus pandemic impacted your work and the real estate market in general?
“The immediate impact in, March 2020, was that the market stopped for one or two months. No one knew what the future would look like. Everyone thought that the economy is going down, that there was going to be unemployment and that therefore no one wants to invest and there will be no projects.
“After this one or two month gap people realised that despite the downturn there will still be new buildings, reconstructions and other projects, so, since the summer of 2020, the flow of new projects has returned.”
Ok, but when it comes specifically to real estate crowdfunding, has there been any noticeable trend since the coronavirus pandemic began?
"[Crowdfunding] is a great tool for people to benefit from investment opportunities which were previously open only to very wealthy individuals.”
That is a very good question. I think we need more data for that. It is market-to-market related and very much connected to the specific lockdown in each specific country. Our overall opinion on this is that the market is doing well, despite examples of platforms which needed to suspend some of their investment opportunities.
“A great example of this is Spain, where many projects, such as tourist apartments, were crowdfunded and now do not produce any cash flow. This means that such projects need to be suspended, or prolonged. Investors of course do not like that, because it means that they do not receive their money back in the time period that was originally planned.
“In the United Kingdom during the summer, the Financial Conduct Authority changed its regulations for bonds and mini-bonds, which meant that some platforms had to close or suspend their activities. That does not mean that investors lost their money. They can of course finish those opportunities that are offered on the platforms. However, they cannot take advantage of new opportunities.”
Are there any benefits to being based in Prague?
“First of all, I really like living in Prague as a person, but I also really like the technical team that we have been able to build here and that we can find really capable technical people here as well. That is the biggest advantage to starting a company in Prague, in my opinion.
“Furthermore, it is also great that Prague has a good mixture of foreigners living here too. We have been able to build an international team from the beginning and it is great that we can find these kinds of people here in Prague.”
Is there anything you believe could help get real estate crowdfunding more established as an attractive form of investment in the future?
“It has already happened thanks to the European Union. There is a new EU regulation for crowdfunding which was passed at the end of 2020 that unifies the requirements for crowdfunding platforms across Europe.
“This is a really great push towards implementing the same crowdfunding mechanisms and related company registrations. It is a big opportunity for the development of the whole crowdfunding industry as a whole.”
