The French Real Estate Crowdfunding is Going through First Crisis

Tough times for real estate crowdfunding in France. The rise in rates has caused a collapse in real estate purchases, particularly in new properties (-38.4% in 2023 according to the Federation of Real Estate Developers – FPI). Promoters are seeing their unsold stocks grow.

The construction sites, which can only begin beyond a certain marketing threshold, are at a standstill. Margins are shrinking. The social plans announced by giants like Vinci Immobilier, Nexity and Bouygues Immobilier demonstrate the seriousness of the situation.

At the other end of the chain, these discrepancies have consequences for individuals who have invested in real estate crowdfunding

Usually, the time between subscription and repayment rarely exceeds 18 to 24 months. By the time the project ends and the promoter recovers the proceeds from the sales from the buyers, after the last calls for funds. With the crisis, real estate crowdfunding platforms are facing an unprecedented increase in requests for extension of reimbursements. Without being able to finish their projects on time, funded developers do not have the cash flow necessary to return their funds to investors in a timely manner.

Over the past few months, repayment delays have been piling up. “I am currently participating in around ten projects, and 7 of them are late,” explained Guillaume, a crowdfunding investor for 5 years. For the moment, this represents around 15,000 euros blocked. The problem is found on the 4 platforms on which I have invested. “. If the delay is not synonymous with the failure of a project (and therefore a loss for investors), the default rate could nevertheless explode by 2025.

Real estate crowdfunding is experiencing its first crisis

This phenomenon reminds us that the 8 to 12% potential return displayed by projects is accompanied by substantial risk, particularly during periods of market decline. Until now, with the exception of a few isolated failures, crowdfunding investors had not experienced this risk of recession.

History shows, however, that the real estate market is highly cyclical, experiencing a period of sudden decline approximately every ten years. It should be remembered that real estate crowdfunding arrived in France in 2014 – 2015, at the dawn of a new upward cycle driven by the continued fall in rates. The sector is therefore experiencing its first crisis after a decade of continuous improvement.

For the real estate crowdfunding platforms, the challenge is significant: avoid or limit investor losses, preserve their reputation and find growth drivers to compensate for downward cycles in real estate (some generalists have also particularly accelerated on the financing of SMEs traditional).

“Risk is noted on each page when investing in a project,” underlines Guillaume . What is happening today, I would say that it is part of the life of an investor, we know that there is no return without risk. I remain confident in the long term. But what makes you suspicious is when you don’t get any response from the platform, or when you feel like it’s getting in the way.”

A message that the Wiseed platform understood well. In a “ letter to investors ” sent on April 21, Mathilde Iclanzian, its general director, favors transparency regarding the new context. “There are many of you today who are expressing your concern about this situation. Several questions often arise: what is behind this wave of delays in reimbursements? Should we expect an increase in the number of defects? Unfortunately, the answer is most certainly yes, and 2024 will be a pivotal year .

The long email details the measures taken to preserve the interests of investors. Each extension request is subject to a rigorous examination to assess its validity and the financial health of the company concerned. The platform now does not grant any financing without security via mortgages or security trusts. It also states that it has adjusted its contracts to improve flexibility in the repayment of loans and has doubled its resources to manage payment deferrals.

Still difficult months ahead for the French real estate crowdfunding sector

It will probably take many more months for the entire real estate sector to recover and for crowdfunding to regain momentum. Fortunately, certain signals seem to be going in the right direction: according to the Observatoire Crédit Logement , credit rates have had 3 consecutive months of decline, posting an average of 3.90% in March after a peak at 4.21% at the end. of year. With inflation falling, the European Central Bank could also start cutting rates from June, which would be an important new milestone.

But takeoff will likely remain slow. Especially since in new construction, the end of the Pinel system on December 31 will deprive the projects of a large part of rental investors. According to the FPI, these represented almost half of sales since 2016. In 2023, after a tightening of the system, their share fell to 35%.

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(Featured image by satheeshsankaran via Pixabay)

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First published in ideal-investisseur.fr. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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