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– With increased risk, real estate crowdfunding has been a very profitable investment in 2023, with an average IRR (internal rate of return) of 10.3%.
When it comes to investments, an attractive return is never obtained, for the investor, without taking risk. A rule from which real estate crowdfunding no longer escapes, a practice which consists, for an individual, of financing a real estate operation (construction or renovation of a property) in exchange for interest paid to them during the duration of this loan (between 6 and 36 months). “More” because for a long time, the “crowdimmo” presented little risk to investors. But for two years, disputes have been piling up. This is evidenced by the sharp increase in the number of files arriving at the desk of the mediator of the Financial Markets Authority (AMF), Marielle Cohen-Branche.
During a press conference this Tuesday, June 4, the latter revealed that the number of files processed by its services concerning real estate crowdfunding alone increased by 110% between 2022 and 2023. And this “trend seems to continue in 2024”, we can read in its 2023 report, presented on this same occasion. In question, according to the latter, “investors who complain about delays in coupon settlement or extension of bond issues“.
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Investment in a real estate crowdfunding project gives rise – in the vast majority of projects – to the issuance of a bond on the part of the real estate operator. That is to say a debt instrument by which the latter undertakes to pay interest on a regular basis (“the coupon”) to the individual investor. However, for two years, delays in the payment of this interest have multiplied, which may force operators to extend the operation, and to delay the reimbursement of “the crowd” (“crowd” in English).
Delays greater than 6 months multiplied by 4 since 2021
In 2021, the rate of delays “non-contractual”, in other words which cause an extension of the project beyond 6 months, came out at 6.61%. In 2023, these same delays affected no less than one in four projects, or 20 to 25% of them, according to the annual barometer from Mazars and Financing participative France (FPF). The main reason is the increase in the cost of real estate credit, which has greatly reduced the number of projects financed in stone, and therefore the activity of developers and property dealers.
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In the midst of the housing crisis, has real estate crowdfunding become too risky?
In the context of the files handled, the mediator therefore verified that this risk of capital losses or illiquidity – that is to say of the impossibility for the investor to recover his “put” at the desired time – was clearly mentioned “on the platforms’ website, but also on the pre-contractual and contractual documentation”, details his report. In this case, in several cases, the mediator noted the presence “incomplete and unbalanced information in presenting the advantages and disadvantages of investments.”
The fault, at the time of these files, was a “rather light regulation” for Marielle Cohen-Branche. A new European legal framework, judged “more restrictive”, now weighs on real estate crowdfunding platforms. Since November 11, 2023, only players who have obtained crowdfunding service provider (PFSP) approval from the AMF can carry out this activity. However, PFSPs now have the obligation, for example, to create a dedicated subscription process for uninformed investors, with an investment limited to 5% of their net assets, or 1,000 euros.
