Real estate crowdfunding
Crisis in Ukraine: what risks for real estate crowdfunding?
May 18, 2022
On February 24, 2022, Russia went to war with Ukraine. This conflict, following several months of political tensions between the two countries, is now shaking up the world economy. This upheaval could have an impact on a multitude of sectors, including the real estate sector and therefore real estate crowdfunding.
The real estate sector is exposed to a certain number of risks and current events lead us to focus on two main types of risks that could impact it. The risk related to construction and therefore to the cost of materials and the risk related to the marketing of real estate.
Russia is a major energy supplier in Europe, the world's3rd largest oil producer and2nd largest gas producer. These energies are necessary for the transformation of raw materials needed for the construction of real estate and for their transportation. Moreover, the country is also among the top 5 producers of steel, nickel and aluminum. All these materials are used on construction sites.
The economic and financial sanctions taken by France and more generally by the EU against Russia force material importers to turn to other regions. The urgency and increase in demand on these producers may lead to higher prices and delays in the progress of construction.
That said, after interviewing real estate developers, they seem to be planning to pass on part of the increase in cost to buyers by increasing sales prices, particularly in the context of block sales to professionals. For future developments, the acquisition price of land is likely to be impacted downwards.
The current context could also lead to difficulties in marketing real estate transactions. Indeed, the increase in interest rates for loans is limiting buyers' ability to purchase and could lead to a drop in prices.
For certain types of property, particularly very high-end properties, the limitation of Russian investments can be felt. This is particularly the case for exceptional properties in Paris or in the South of France, where a wealthy Russian clientele is usually positioned. At the level of Raizersthe impact of this risk will remain moderate, as these transactions represent less than 5% of the transactions financed on the platform.
The main risk identified here is therefore a delay in the marketing of the properties that could delay the closing of the operation, its sale and therefore the reimbursement of the investors, with an increase in the cost of financing and a possible drop in price that would weigh on the operator's margin.
In the latest transaction reports received (about 100 transactions) in April 2022, Raizers does not note any real impact at this stage.
Real estate crowdfunding is directly dependent on the real estate sector and the impacts of the crisis can be seen on both the operations financed by crowdfunding and on the investors.
The most likely risk for the crowdfunding market would be a risk of delays in payment of maturities. Indeed, as explained above, real estate transactions could be subject to delivery delays and marketing difficulties. Bonds could therefore be affected and face postponements in the payment of interest and/or the repayment of capital. However, the implementation of these deferrals would entail late payment penalties, and investors would see their profitability maintained.
The maximum risk would correspond to the default of operations for which the operators would not have been able to cover the increase in their cost price despite the increase in their selling price. In this case, the guarantees In this case, the guarantees put in place at the time of the bond issue could be activated in order to recover the amounts due. Indeed, Raizers often combines several guarantees such as first or second rank mortgages (depending on the coverage), notarized notarized personal guaranteesnotarized personal guarantees security trustsand First demand guarantees...
Inflation and the impact on the savings capacity of households could also lead to a risk of a decrease in the number of investors in the crowdfunding market. However, real estate is still perceived as a safe haven, especially compared to stock market values which have fluctuated enormously during the crisis. Since the beginning of the year, Raizers has seen a strong increase in its investor base, which is looking for a return based on real estate assets in France and Western Europe.
The economic impact of the crisis in Ukraine is, in general, counterbalanced by a tension (shortage of housing) in the real estate sector, which reassures us about the future of the sector. The demand for real estate financing, but also for investment, remains as strong as ever.
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