Why the Growth of Real Estate Crowdfunding in Mexico Slows in 2023

High interest rates, lack of knowledge on the part of developers and investors, and the limitations of the Fintech Law had an effect on the operation of real estate crowdfunding platforms during 2023.

Based on data from the Association of Collective Funding Platforms (Afico), Iván Carmona, co-founder of 100 Ladrillos, shared that, in 2020, the sector had an annual increase of almost 100% in terms of collection; However, in 2023, the growth was only 30% compared to what was captured in 2022.

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Real estate crowdfunding platforms in Mexico

“We met our growth goals, but not in accordance with what we had a few years ago. Although it is true that the industry continues to consolidate, we did see less revenue,” he commented in an interview for Econohábitat.

Ignacio Torres, general director of 4S Real Estate, mentioned that real estate crowdfunding has advanced less quickly than expected, despite the fact that market penetration has made slight advances in the last couple of years.

In a survey conducted by the firm, it was found that, in 2022, 8% of developers in Mexico mentioned having used crowdfunding to finance their real estate projects ; By 2024, the figure is projected to rise to 15 percent.

“Ignorance about the functioning and operation of this type of platforms is the number one reason why Real Estate companies in Mexico do not use this collection alternative; another factor that influences is the lack of credibility,” Torres added.

From the point of view of investors, according to Carmona, 2023 was a complicated year because the Bank of Mexico’s reference rates remained high, which discourages investment by the general public, since they are more attracted to the saving your money or investing in Cetes.

By 2024, interest rates are expected to remain stable, which would allow crowdfunding platforms for real estate to advance in double digits, with an annual increase of between 40 and 50% in terms of collection, the expert added. .

For its part, the goal of 100 Ladrillos is to raise up to 500 million pesos by the end of this year ; 70% of the resources will be allocated to the industrial sector, 15% to the vacation residential segment, and 15% to commercial and offices.

Modifications to the fintech law

Although the Fintech Law has been a key element in providing certainty in the real estate crowdfunding market in Mexico, it has also been a limitation for its growth. However, it is expected that some changes in regulation will materialize in 2024 that could unblock the sector.

First of all, Carmona indicated that the intention of the National Banking Securities Commission (CNBV) is to end the wait for all collective funding platforms , which currently operate in the eighth transition period, with which they will receive authorization or refusal to operate officially.

On the other hand, the modification to the financing limits established by the Fintech Law is anticipated. Currently, platforms can fund projects with a maximum value of approximately 40 million pesos, and no more than one fundraising campaign can be carried out for the same property or developer.

“This limits us from creating a large-scale industrial park, for example; but we would like to be more attractive to large developers. I think the authority already understood it and this year we could hear good news about it,” declared the co-founder of 100 Ladrillos.

In the expert’s words, an amount that could make real estate crowdfunding more attractive is 500 million pesos or more. Likewise, he added that one of the proposals with the greatest potential is to allow a scheme similar to a revolving credit, with which the amount could become secondary, since construction companies could access more than one financing per project.

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(Featured image by nattanan23 via Pixabay)

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

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