Can real estate crowdfunding survive the crisis?

It had become the go-to investment in recent years! Over the past few years, real estate crowdfunding has attracted the interest of a growing number of investors seeking attractive returns. 

This investment method, marketed as simple and risk-free and buoyed by the booming real estate market, has offered an attractive opportunity to diversify portfolios. Since its inception in France in 2012, real estate crowdfunding has yielded an attractive average return of 9.45 percent—three times that of the Livret A savings account (3 percent)—which has contributed to its growing popularity among households. 
 

In 2022, real estate crowdfunding raised nearly 1.7 billion euros, accounting for a significant portion of the total 2.4 billion euros raised through crowdfunding as a whole.
 

While crowdfunding as a whole grew by 25% in 2022, real estate crowdfunding outperformed this trend with a 40.2% increase in funds raised, driven by marketing campaigns from approximately 200 online platforms, even though only 60 of them are truly active.
 

The concept of real estate crowdfunding allows individuals and professionals to invest jointly in real estate projects by subscribing to bonds issued by developers or project companies. This form of investment offers investors the opportunity to earn interest or dividends, depending on the type of investment chosen. In addition, it enables developers to strengthen their equity and makes it easier to secure bank financing.
 

However, despite its initial appeal, real estate crowdfunding is currently facing its first major crisis. Rising interest rates have had a significant impact, putting many real estate projects on hold and increasing the risk of default for developers. This situation highlights a well-known economic principle: the higher the return, the greater the risk.
 

Real estate indicators aren't looking good either. The decline in housing starts and building permits, combined with rising construction costs and the impact of new environmental standards, is putting additional pressure on the real estate market and developers.
 

As a result, real estate crowdfunding raised significantly less in 2023, with a decline of more than 27% compared to the previous year. Delays in repayments are on the rise, with a notable increase from 20% to 40% between 2022 and 2023. 

Furthermore, payment defaults—though limited at the moment—could rise to 4 to 5 percent by 2025.
This situation raises concerns about developers’ ability to repay loans, despite the returns offered by certain platforms, which now exceed 10 percent. These challenges raise questions about the sustainability of the real estate crowdfunding model and call for increased vigilance on the part of investors. Indeed, investors could face capital losses, delayed repayments, and defaults, thereby balancing the potential for returns against the associated level of risk.