In 2020, real estate crowdfunding raised 505 million euros, an increase of 35% in one year, for an average return of 9.3%. Despite these strong performances, real estate crowdfunding could feel the effects of the crisis over the next two years. Here's a closer look at the successes and risks ahead.
Real estate crowdfunding, an investment that pays off
Real estate crowdfunding enables private investors to invest in real estate development projects or property transactions via online platforms. The entry fee is generally low, set at 1,000 euros on most platforms, which means that savings can be invested and interest earned at the end of the project.
In 2020, participatory financing in real estate was one of the highest-yielding investments, with an average annual return of 9.3%. Fundraising was up 35% on 2019, at 505 million euros versus 373 million in 2019, representing 41% of total fundraising since 2016.
589 projects were financed in 2020, 8% more than in 2019, for an average amount per collection of €857,329, compared with €689,150 in 2019. The average investment amount also increased: from €1,581 in 2019, it jumped 198% to €4,711 in 2020.
Despite the Covid-19 crisis, real estate crowdfunding thus proved resilient, even as construction sites were put on pause during the first half of 2020. The number of investors increased by 20%.
Health crisis: what impact on real estate crowdfunding?
At first glance, all the signs are green for those wishing to invest in this type of participative financing. Particularly in view of the current situation, where banks are demanding more equity from developers and property owners, who are increasingly turning to real estate crowdfunding.
However, this investment is not without risk. Between collection and repayment, a period of 18 to 24 months elapses, which means that the real, global impact of the crisis can only be fully measured over the next two years. Delinquency and default rates could therefore rise significantly in late 2021, 2022 and 2023.
Admittedly, the risk remains limited, since in the event of late repayment, investors continue to receive interest, which can sometimes be increased if the delay exceeds 6 months. What's more, the platforms are keen to reassure, and claim to be more demanding when it comes to project selection.
In addition, several real estate crowdfunding players are currently working on the creation of a guaranteed fund, with a loan offer that will ensure full repayment to investors, whatever happens. On the other hand, this lower risk would be accompanied by a lower return, set at around 5-6% per annum.