The ABC of Real Estate Crowdfunding and Its Prospects in a Difficult Environment

Following the increase in interest rates for construction loans in Mexico, crowdfunding platforms -a model known as crowdfunding- have positioned themselves as an alternative for financing real estate projects.

According to data from the Asociación de Plataformas de Fondeo Colectivo (Afico), in the last five years, this industry has funded close to $441.7 million (8.5 billion pesos), a growth of 695% in that period.

In real estate development, these firms act as intermediaries between investors who wish to diversify their portfolios and developers seeking funds to carry out commercial, industrial or housing projects.

In Mexico, there are currently several crowdfunding platforms operating, of which 14 have obtained their authorization to operate under the terms of the Law to Regulate Financial Technology Institutions, known as the Fintech Law.

In this context, four real estate crowdfunding entities have been authorized under the terms of this law: 100Ladrillos, M2Crowd, Arces.mx, and Topkapital.

Likewise, there are other real estate crowdfunding entities that already have conditional authorization, i.e., they only have to comply with certain administrative procedures in order to have the definitive endorsement. The platforms in this scenario are Expansive, Briq.mx, Monific, and PM2.mx.

Although these entities are not yet 100% authorized by the Fintech Law, they can carry out operations since they started operations before the enactment of the regulation, which was in March 2018.

Read more about the real estate crowdfunding market in Mexico and find the most important business news of the day with the Born2Invest mobile app.

Current scenario

Real estate crowdfunding entities have had steady growth in recent years, both in terms of credit and funding, which they receive for the development of real estate projects.

In 2021 alone, the firm Briq.mx funded around 350 million pesos, with investments starting at 1,000 pesos and returns between 12 and 20% per year.

However, by the end of 2022, the funding received from investors is expected to slow down due to increases in the reference rates of the Bank of Mexico (Banxico), according to Alberto Padilla, CEO of Briq.mx.

“We are going to grow, but not at the pace of previous years. The number of investors will probably increase, but not the amount of funding, mainly due to the increase in rates,” he commented.

According to the specialist, instruments such as Federal Treasury Certificates (CETES) or Bank Promissory Notes have become more attractive in the market, which reduces the participation of higher risk investments, such as real estate crowdfunding.

“Fortunately, real estate investment is in the first rung of risk, and this effect does not affect us as much as the stock market, cryptoassets, among other instruments. However, there is a hit. Also this year has been fundamental for regulation,” he assured.

Yields

Despite the inflationary outlook, Padilla highlighted that the real estate sector is always a good investment opportunity and generates competitive returns.

One of the main characteristics of this model in general is that it allows participation with minimum investments of up to 5,000 pesos, in developments that offer annual yields of between 14 and 16%, depending on the type of property.

Marco Arroyo, director of real estate projects at M2Crowd, explained that in the process to invest in real estate crowdfunding, interested parties go through an accreditation filter in which they must present identification and a bank account to make transfers.

“Once on the platform, each investor can choose the project that seems most attractive for the area, the design, and above all, the return on investment,” Arroyo commented.

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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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