Real estate crowdfunding in 2024: fewer operations financed, stricter selection process

The 2024 real estate crowdfunding barometercarried out by Mazars and France FinTech, highlights a marked decline in the sector. After an already declining 2023, the trend is confirmed with a 25.8% drop in funds raised and a reduction in the number of projects financed. This phenomenon is largely explained by the tightening of selection criteria applied by platforms seeking to limit risk in an uncertain economic climate.

A sharp decline in participatory real estate financing

Real estate crowdfunding, which once accounted for a dominant share of participatory financing, continues to slow down in 2024. Its share of total funds raised fell from 68.2% in 2022 to 55.6% in 2023, and to 49.7% in 2024. In absolute terms, amounts raised fell from 1,161 million euros in 2023 to 861 million euros in 2024.

The number of projects financed, on the other hand, has fallen less sharply: whereas 1,237 operations were closed in 2023, there are only 1,139 in 2024, a drop of just 8%. Above all, the average value of operations financed by the platforms fell to €730,500 in 2024, compared with around €908,000 in 2023. This is due to stricter selection by the platforms, which have lowered their intervention levels by financing projects with high LTV(loan-to-value) ratios.

More selective platforms in a risky environment

Against a backdrop of rising construction costs, supply difficulties and a slowdown in real estate transactions, crowdfunding platforms have tightened their lending criteria. Today, only the most solid operations are presented to investors.

Some of the more stringent platform requirements include:

• A high rate of pre-marketing: Projects must demonstrate a certain level of sales (where relevant) before they are eligible for equity crowdfunding.
• More stringent requirements on the financial health and experience of project developers: Property developers must prove their ability to complete projects without major financial difficulties.
• A preference for operations without work or with minor renovation work: Projects requiring major work are considered riskier due to the rising cost of raw materials and recruitment difficulties in the construction sector. This is illustrated by the preponderance of property-dealer operations (56%) in the typology of operations financed by crowdfunding.
• Systematic guarantees: 1st ranking mortgages, trusts and other security mechanisms are now almost mandatory to obtain financing.

As a direct consequence of these restrictions, no more than 10% of operators' financing requests are actually presented to investors.

Increased risks and delays

At the same time, the sector is facing rising risks. The barometer highlights that project repayment delays increased further in 2024. Some 15% to 20% of projects are more than 6 months behind schedule, and a proportion of these are going into receivership (between 6% and 8% of current projects). Final losses concern between 4% and 6% of operations.

This situation can be explained by the difficult state of the real estate market: rising interest rates, a fall in the number of transactions, difficulties in obtaining building permits, rising construction costs, and global economic and fiscal uncertainties.

Reimbursements still high, but performance under scrutiny

Despite these difficulties, the real estate crowdfunding sector continued to record significant repayments in 2024. 642 projects were redeemed, representing a total of 571 million euros. This demonstrates that, despite the tightening of selection criteria, projects that manage to be financed and brought to completion still offer a solid and remunerative repayment capacity.

A changing sector: towards a new approach to participatory real estate financing

Faced with these challenges, real estate crowdfunding seems to be evolving towards a more selective and secure model. Rather than financing a large number of projects, platforms prefer to concentrate funds on operations deemed more secure. This has led to a reduction in the average size of operations and an adaptation of the returns offered.

In 2024, the average internal rate of return (IRR) for real estate crowdfunding is 10.6%, up slightly on 2023 (10.3%). This trend shows that platforms are adjusting their profitability promise to maintain the attractiveness of this asset class, while taking growing risks into account.

Conclusion

Real estate crowdfunding in 2024 is marked by a dual trend: a significant drop in the amounts raised and a tightening of granting conditions. Faced with increasing risks and market uncertainties, platforms are adopting a more cautious approach, focusing on solid, secure projects.

So, while real estate crowdfunding remains an attractive tool for investors, it is becoming increasingly demanding for project owners in order to limit the risks for investors.