Real estate crowdfunding: the year 2020 in review

In spite of a year 2020 marked by the health crisis, with construction sites being interrupted for several weeks, real estate crowdfunding held up well.

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Real estate crowdfunding: functioning and risks

Until recently, investing in real estate development was essentially reserved for institutional investors. In 2010, real estate crowdfunding appeared and made this type of operation accessible to individuals from only about $1.200 (€1.000). The principle consists in bringing together several individuals who invest together in a real estate transaction. The crowdfunding platform, approved by the AMF, selects real estate development projects and organizes the call for funds from individuals. It presents the project to individual investors, the terms and conditions of the investment (duration, rate of return, guarantees, risks, and others). The investment is made in the form of a loan / bond and the funds collected are used to carry out the operation. At the end of the operation, each individual recovers the amount invested plus interest. 

This type of investment involves certain risks. First of all, a risk of default: the promoter is unable to repay the loan and the savers lose all or part of the sums invested. There is also a risk of late repayment: the real estate project is delayed and the saver is repaid after the date initially planned. However, in this case, the wait is rewarded since interest continues to accrue on the months of delay.

Real estate crowdfunding has resisted well to the health crisis

With the first containment, the construction sites were interrupted on March 17th and gradually resumed in mid-April. Some projects financed via crowdfunding platforms had therefore been delayed. For the second containment, the construction sector is benefiting from government support: a new health protocol has been put in place, thus ensuring that there will be no interruption in activity. However, the delay caused by the confinement cannot always be made up for. 

Nevertheless, crowdfunding has held up well in this very special year of 2020. According to the HelloCrowdfunding real estate crowdfunding barometer, in 2020, real estate crowdfunding platforms financed 530 projects, a stable figure compared to 2019 (547). However, the average amounts raised per transaction are 30% higher in 2020 $985,370 (€801,453) than in 2019 $843,082 (€685,510). The total collection for the year 2020 increases by 27% compared to 2019 with $580 million  €472 million.

The average rate of return distributed to individual investors is also stable at 9.4%, as is the average duration of projects (21 months).

At the end of December, out of a total of 1,937 projects, 48 are currently in arrears and 833 have been repaid.

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First published in BOURSORAMA, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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