In the first part of this post we gave an example on how interest rates can hinder or improve real estate crowdfunding acceptance, by studying a Brazilian case. Now we are going to focus on startup crowdfunding and real estate investment in the developed world.
Brazil is an extreme case. Now, the US has their the economy in a good shape, with steady growth at low interest rates. There are some problems in Europe, particularly in Greece, Italy, Portugal, and Spain, but the European economy, as a whole, is pretty stable when compared to some years ago.
But even in those economies, interest rates play a role on equity crowdfunding expectancies. Despite Fed having doubled interest rates, the real rates are still negative in the US, as the inflation hit 0.7% in 2015. In Europe, negative rates are possible, as the Eurozone inflation is only 0.2%. In Switzerland, the inflation rate is negative, at -1.3%, which makes negative interest rates possible.
In such a scenario, any rental is a superb investment, and that’s part of the reasons why real estate crowdfunding is growing so dramatically in the US and Europe, particularly in the UK. So real estate investors worldwide should take a close look at currency and interest rates trends in order to invest in countries that can secure a return on investment.
Startup crowdfunding, however, is another story. The investors in those companies are usually expecting high, double-digit return rates. So, interest rates are not key concerns for this type of investor, although they are an indicator of economic health.
High interest rate countries like Brazil or Russia have lagging economies, so expectancies on startups tend to be lower, at least in the short-term. In comparison, lower interest rate economies tend to have more stable, predictable economies and, while starting a company in developed economies can be challenging, the return on investments is more predictable.
As such, startup investors should consider just the market where the company is inserted. Even in shrinking economies, there are growing markets that can give sizable returns even if the expectancy on currency or economic growth is not good. Interest rates, for this type of investor, is just one variable in the equation.