The Autorité des Marchés Financiers (AMF) has published an analysis of the performance of the French real estate crowdfunding market, based on data collected from the 10 largest platforms in terms of inflows.

In recent years, the expected returns on the projects proposed by real estate crowdfunding platforms have remained relatively stable, fluctuating between an average of 9.1% and 9.6% between 2017 and 2022. From 2023 onwards, a significant increase was seen, with returns rising to 9.9% before finally peaking at 10.7% at the end of March 2024. While this trend may seem attractive at first glance, it is taking place against a backdrop of economic deterioration in the real estate investment sector, marked by a rise in interest rates, a fall in the number of real estate transactions and increased pressure on project owners. These factors raises questions as to the prospects for these returns being attained.

At the same time, late repayments have become a key issue for investors. Around 30% of the projects in progress as at 31 March 2024 are behind schedule, some of which have led to collective insolvency proceedings and definitive losses. Projects financed in 2020 and 2021 in particular show worrying delay rates, reaching 20.1% and 36.9% respectively two years after their launch. The slowdown in inflows seen in 2023 is also a signal after a record year in 2022.

These statistics show how important it is to strike a balance in communications between the attractive return prospects advertised by platforms and the risks incurred by investors. Although final loss rates remain low to date, these should not be asserted as a guarantee of safety, given that the proceedings leading to a definitive loss takes several years. On the other hand, delays to the repayment of capital and the payment of interest, while not necessarily implying a definitive loss, are largely underestimated in the statistics provided. For example, for projects financed in 2019, the delay rate is 15.2%, but this jumps to 60.2% when late repayments are taken into account, rather than solely the delays that are still in progress.

Furthermore, the financing of real estate crowdfunding projects is often based on business plans with asymmetric risks. These structures are characterised by a low level of capital investment on the part of project owners, combined with a high level of debt financed by investors. While this model allows project owners to maximise their leverage, it transfers a significant proportion of the risk to investors in debt securities. In addition to bearing the consequences of delay or failure, which can include the loss of part of the capital invested, investors do not benefit fully, if at all, from the gains generated in the event of success, since at best they can only hope to be repaid the amount initially invested in the bond or loaned to the project, plus interest.

In light of these findings, the AMF is calling for greater transparency surrounding the platforms’ practices. It is essential that published returns clearly distinguish contractual performance from actual performance, while taking into account all payment delays and incidents. In addition, more granular indicators, including delays to projects that have been reimbursed, as well as an assessment of the risks of liquidity, and partial or total loss of capital, would give investors a more complete and realistic understanding of the risks associated with these investments.

The AMF also published key figures for the crowdfunding market in 2023 (See link in "Read more").