How is the real estate crowdfunding sector coping with the COVID-19 crisis

In parallel with the new housing construction market, in which it participates in the financing, the real estate crowdfunding sector took a break at the start of the health crisis but soon picked up again. In any case, earlier than the construction sites, which at the moment remain largely at a standstill even if they are gradually resuming.

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Collections have started again

Jérémie Benmoussa, Chairman of the Management Board of the Fundimmo platform said that: “After the announcement of the containment, we suspended our collections for about 10 days to analyze the situation in relation to our promoter partners and recalibrate our operations. Since the beginning of April, we have seen the resumption of certain projects and a significant return of investors to our platform with the announcement of the gradual deconfinement.”

Similarly, other platforms such as Koregraf or Immocratie have quickly resumed their collections in recent weeks, but with reinforced project selection criteria.

The real estate crowdfunding parameters will be changed

The success of these recent collections showed that investors are still present and do not want to deprive themselves of returns that continue to hover around 10% (before tax). However, it should be stressed that new obstacles will change the parameters of real estate crowdfunding.

It is to be expected that repayment periods will be extended because, in addition to the delays already accumulated for works in progress, building sites will take longer to complete with improved sanitary conditions. The new organization of the building sites could also be a source of additional costs. As regards the marketing of housing, it is reasonable to expect longer deadlines with increased difficulties in obtaining credit and hence cancellations of reservations.

Vigilance points investors should bear in mind

Without being alarmist, it is therefore necessary to be much more vigilant in the selection of programs to invest in, beyond the filtering carried out by the platforms. For example, it is important that investors avoid exposure to programs aimed mainly at first-time buyers or low-income households, which are likely to be affected by the tightening of credit conditions. Especially in less tense geographical areas where demand is less strong.

It should also be borne in mind that small promoters who do not have strong equity capital may find it difficult to get through the current crisis. Favoring high marketing rates is undoubtedly a guarantee of greater security. Beware also of property merchant operations which, although they have the advantage of being little affected by complex construction phases, can be weakened by a fall in property prices.

Longer repayment terms for projects launched in the last 12 months

Fundimmo stated that certain projects launched in the last 12 months could show a delay in repayment in relation to the maturity date initially planned. Although, it will stick within their maximum contractual period of 6 months, during which the interests of investors continue to accrue to make their investment grow.

Fundimmo also said that the 2-month construction stoppage and the delay in resuming marketing should result in a delay of up to 4 months on some of these projects. A delay that the platform and its committee are nevertheless pleased to have always anticipated in their analysis. It has always been favoring longer commitment periods, taking into account the actual duration of the operations and the incompressible delays linked to real estate.

Koregraf emphasized that, in order to prevent any risk of slippage in the duration of the projects financed, all its investment contracts are historically established over a 3-year term, which is much longer than the average repayment period of 19 months. “We already have the means to withstand longer construction periods for an average of more than a year without putting investment at risk,” emphasizes Vincent Sillègue, President of Koregraf.

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(Featured image by paulbr75 via Pixabay)

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