The Economics of Real Estate Equity Crowdfunding - Motivations, Signalling and Herding

Crowdfunding is a novel and growing phenomenon. While recent research has addressed the equity-based crowdfunding model, scholarly knowledge in the field is still fragmented, and there is a gap in the literature on equity crowdfunding with a specific focus on real estate. Considering the distinctive features of property assets, the objective of this study is to explore real estate equity crowdfunding (REECF) dynamics in terms of motivations to invest and information asymmetries as part of a single decision process.

This research applies a sequential multi-methods exploratory design whereby semi-structured interviews were used to refine the theoretical model of the study before conducting a survey in the form of a self-completed web-based questionnaire. The survey collected 371 complete responses, 127 from crowdtolive.com users and 244 from a UK panel of respondents. The quantitative methods used in the study encompass descriptive analysis, factor analysis, MANOVA, ANOVA, and linear and logistic regressions.

After developing dedicated theoretical models mapping REECF investment motivations, signalling and herding behaviours, this research produced empirical evidence supporting the relevance of the factors identified. The results show that REECF investment motivation factors are obtaining a return, supporting causes and values, engaging in a community, and self-oriented intrinsic motives. Signal factors encompass asset characteristics, campaign characteristics, and project owner characteristics. Relational and impersonal herding behaviours were also found to be prevalent. Furthermore, the study investigated the determinants of each identified factor against a series of demographic control variables before assessing the impact of each factor on investment commitment and home bias.

Based on these findings, several theoretical implications were identified. In terms of key practical recommendations, this research highlighted the importance to further democratize crowdfunding, acknowledge the relevance of funders motives in determining the marketing narrative and, ultimately, consider that both motives and signals perceptions differ based on demographics.

Ultimately, this study is expected to contribute to crowdfunding literature in providing the first model to map REECF dynamics via the identification and validation of a set of motives, signals and herding behaviours as part of a single decision process while empirically exploring the determinants of each motive and signal and their respective effect on REECF investment behaviours.