Real estate crowdfunding: “The fundamentals of the new real estate market remain buoyant in the long term”

Alarmist messages are multiplying as the real estate market, especially new ones, is going through a serious crisis. Operators are faced with construction costs which are stabilizing, of course, but at relatively high levels. The risks that weigh on the margins of the promoters are not to be neglected. Opposite, buyers are less solvent due to the rise in interest rates.

Demand structurally higher than supply

Let's take a step back. It should be remembered that the market has gone through much bigger crises than these, in the 70s and 90s, then in 2007 with the subprime crisis. The crisis we are going through should be put into perspective in view of the exceptional level of real estate transactions in 2021 and 2022, at more than one million per year, new and old combined. Witnessing a slight decline is therefore normal. It's actually quite healthy. Similarly, the European Central Bank (ECB) had to resolve to raise its key rates sharply to fight inflation, but this movement should soon end and we can expect a return to lending rates around from 2 to 4% in 2024.

From a long perspective, the fundamentals of the real estate market remain solid: demand is still higher than supply. The structural deficit is estimated at 500.000 new new homes per year in France. As for the demand for social housing, it is exploding with 2,4 million people today on the waiting list for a property.

Towards a new "whatever the cost" of real estate?

However, in the shorter term, we can expect a real air pocket until the beginning of 2024, with a consolidation of the key market and the risk of bankruptcy among subcontractors. A wait-and-see attitude which, if nothing is done, will be expensive and potentially turn into a social, societal and economic bomb. The construction sector represents, in fact, 10% of the GDP, 360.000 companies and 1,8 million employees. The legislator should be aware of this and react very quickly. The National Refoundation Council must set a new course soon. Otherwise, the risk is to see a crisis of purchasing power spill over into real estate to lead to a crisis of the power to live.

New buoyant market sub-segments less impacted by the crisis

While waiting for this return to normal, we must focus on new opportunities in real estate investment, those which are the least correlated to the vagaries of the market and which are more short-termist. With deadlines between 18 and 36 months, crowdfunding remains the only short-term investment in real estate. And contrary to popular belief, it is not limited to new real estate and construction. Its range of investments is wider and surfs on current trends.

Thus, the financing of energy renovation, at the heart of societal concerns, is developing. In Île-de-France, for example, 60% of the office stock is made up of energy sieves. Legislative developments governing the energy transition are opening the way to a new market, that of the rehabilitation and renovation of thermal sieves. Especially since institutional investors are required to invest a percentage of their portfolio in compliance with ESG (Environment, Social and Governance) or SRI (Socially Responsible Investment) criteria. Individuals seek to give meaning to their investments.

Ditto for social housing which is acquired en bloc from social or institutional landlords. The Caisse des Dépôts de Consignations (CDC) has moreover just announced that it has acquired 17.000 homes from real estate operators.

Service residences also offer a wealth of opportunities. Whether it concerns student residences and senior service residences (RSS), demand is strong in these market sub-segments.

Crowdfunding therefore offers interesting possibilities for diversification and makes it possible to be patient while waiting for the stabilization of the real estate market. Its short-term return is undeniable, with an average rate of return of 9,4%** last year and more or less similar returns expected in 2023, according to the first estimates of the year. However, it is necessary to show more vigilance and selection in the programs and their objectives in order to limit the default rates which may be higher in 2024 than the 1% observed today.

* Source: Federation of real estate developers (FPI) - data as of May 25, 2023

** Past performance does not guarantee future performance

Tribune by Antoine Tillet, Director of Investor Relations at Homunity (LinkedIn).