Real estate crowdfunding -
ZOOM ON... The Financial Guarantee of Completion (GFA)
March 4, 2022
While browsing the various projects being funded on real estate crowdfunding platforms, you may have read the term "GFA". What exactly does this mean?
The Financial Guarantee of Completion (GFA) is an insurance taken by the property developers when the goods of the operation are sold in VEFA (for new assets) or in VIR (for old assets to be rehabilitated).
Indeed, in the VEFA (Sale in Future State of Completion) or in the VIR (Sale of Building to be Renovated), the purchaser buys a good whose construction or the renovation is not completed. He pays for his property as the work progresses, which implies that the operator will call the funds as the work progresses to finance the next stage.
In this type of operation, there is a risk that the operation will not be completed. The purchaser would then find himself the owner of a non-existent or unfinished property.
To alleviate this problem, the GFA comes into play. It can be bank or insurance company provided and covers the financing of the completion of the operation in case of default of the operator. It is mandatory in development operations and is paid for by the operator. The GFA is an extrinsic guarantee that can take two forms depending on the progress of the project.
The two forms of the extrinsic guarantee are the GFA and the Financial Guarantee of Repayment. The latter takes the form of a guarantee from the developer to the purchaser and ensures the reimbursement of funds already paid if the developer is unable to finish the work. It is taken out simultaneously with the GFA.
These two guarantees are substitutable. The Repayment Guarantee will be activated more often in case of amicable or judicial resolution of the sale due to lack of completion of the operation and the GFA in case of significant progress of the construction site.
In order to ensure the smooth running of the operation, the GFA will also play a role in monitoring and controlling the progress of the project.
To do this, at the beginning of construction, a centralizing account is set up with signing authority between the insurer/bank GFA, and the operator. This is the account that will receive the installments from the purchasers and will allow the financing of the works. Depending on the type of financier, it will be possible to obtain a third power of signature to also control the repayments. This is an interesting guarantee for the financier because he can then also control the financial flows.
What does this mean?
In other words, all project financing flows (bank, crowdfunding or calls for funds) related to marketing are blocked in an external account. All requests for payment and outgoing calls for funds must be justified by the operator, by invoice or certificate of completion, at each stage of the project, according to the schedule established in the reservation contract, traditionally as follows
|Call for funds||Step|
|5 %||Signature of the act|
|25 %||Demolition and earthwork for foundations in progress|
|5 %||Completion of foundations|
|10 %||Completion of the ground floor|
|10 %||Completion of the 1st floor|
|5 %||Completion of the 2nd floor|
|5 %||Completion of low floor 3rd floor|
|5 %||Completion of the distribution walls|
|5 %||Completion of the building|
|5 %||Delivery of the keys|
Before being released, a signature from the GFA representative, the funder and the operator is required.
The centralizing account therefore allows:
The AFM is a guarantee for buyers who commit to the purchase of a new or renovated property. In case of default of the operator, they can either be reimbursed for the deposits paid when it takes place in the start-up phase of the program or the insurer will take charge of the finalization of the construction site to deliver the finalized property to the buyer.
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