Real Estate Crowdfunding, Oxygen for Developers in 2023

We are entering 2023 and for yet another year the shadow of doubt hangs over the future of the real estate sector. Between the most pessimistic and the most conservative predictions, I am in favor of adopting a position of expectation, at least from the perspective of crowdfunding.

In the absence of global data, if we take Urbanitae as a reference to take the pulse of real estate crowdfunding in Spain, looks like the sector has enjoyed good health in recent months. In 2022, the platform doubled both the number of projects and the amount financed.

It is true that in terms of volume, there is still a long way to go. Alternative financing comprises between 40% and 60% of the real estate business in other countries. Therefore, of the €10 billion of developer credit granted each year in Spain, around €5 billion remain to be covered.

But, beyond the numbers, the reality is that the sector has made the qualitative leap we were longing for: participatory financing has managed to go beyond the category of alternative to rub shoulders with banks, funds, and other large capitalist partners in real estate.

Read more about real estate crowdfunding and find the latest financial news of the day with the Born2Invest mobile app.

Real estate crowdfunding has managed to consolidate a robust ecosystem

On the one hand, it has consolidated a community of small and medium-sized investors who trust in the potential of this investment option. They value it for its attractive profitability and the certainty provided by the fact that there is a tangible asset behind it.

On the other hand, it has become an ally of small and medium-sized developers, who have found in crowdfunding platforms a traveling companion to move forward with their projects on reasonable terms and with competitive conditions. And the symbiosis between both worlds is clearly a winning formula.

A good example of this is the performance of almost twenty projects financed and settled by Urbanitae, including the return of the invested capital and interest. Suffice it to say that, although the average target annualized return was 14%, the actual return has been 18% thanks, in many cases, to the fact that the final execution periods have been shortened. The alliance with experienced and solvent developers and a combination of caution and conservative calculations have been their guidelines.

Is the real estate crowdfunding sector crisis-proof

Without wishing to err on the side of excessive optimism, and being aware that real estate crowdfunding projects are highly correlated with the evolution of the real estate market, real estate crowdfunding will remain on the sidelines of the worst omens. In fact, it can provide oxygen to many operations that in this context are going to have difficulty accessing the capital they need to move forward. And, at the same time, it continues to provide a reasonably stable investment format that is less sensitive to market fluctuations.

In the case of Urbanite., this is more feasible because of the type of financing projects the platform is investing in. The investment committee values that the developers have proven experience, that the land for the operation has been acquired at a competitive price, that there is a good level of pre-sales or that the construction cost forecasts are realistic. Urbanitae also takes into account the buyer’s profile, which in most of the projects is concentrated in middle-income earners with the capacity to absorb the rise in interest rates and in many cases without the need for financing, and this demand is active and recent.

Real estate crowdfunding is called to satisfy a market niche made up of small and medium-sized developers who lack liquidity because they have to assume the costs of land acquisition, which limits their ability to undertake the development of promotions. In their search for financing, as these are operations of less than five million euros, they find no response from banks and large funds. And it is here that participatory financing makes it easier for retail investors to enter into the equity of the projects as capital partners, freeing up the funds they need to move forward.

We can only hope that the real estate market demonstrates, as it did during the pandemic, its solidity and its status as a safe haven asset in the changing environment in which we find ourselves. The data Urbanitae has from its open transactions suggest that the sector may be experiencing, at least in the residential sector, a trend of regression to the average.

__

(Featured image by nattanan23 via Pixabay)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.

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

Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.