Investors Lament Over Real Estate Crowdfunding: Possible €35,000 Loss Reported

Investors Lament Over Real Estate Crowdfunding: Possible €35,000 Loss Reported

Investors Warn of Dilemmas in Real Estate Crowdfunding

Three real estate crowdfunding investors have voiced concerns about certain platforms, citing problems such as prolonged delays, limited consultation, and lack of follow-up. These issues have turned these initial low-cost investments into nightmarish scenarios for some.

Initially, these investors were drawn in by the promise of real estate crowdfunding, a method of financing real estate projects through online platforms. Investors receive regular interest payments during the loan duration (between 6 and 36 months), with the principle repaid at maturity. The low entry cost (as little as 10 euros on some platforms) and an average gross yield of around 11% made this form of investment appealing to many savers.

For Stephane, a lawyer, the investment seemed miraculous initially, offering returns of 10% to 11% for timely repayments until mid-2022. However, since then, projects have been delayed, with 22 of his 90 investments still pending repayment and 8 of them showing significant delay or resulting in the liquidation of the project carrier. For a possible loss of thousands of euros. Laurent, another investor from Lille, invested €125,000 in 45 projects, and estimates that €35,600 could be lost. A third investor, Pierre-Antoine, claims that 15% of his projects have faced significant delays or defaults.

These investors acknowledge the inherent risk in such investments, with platforms warning of the potential for partial or total loss of capital. Yet, Stephane argues that if the returns were high, the risk must also be significant.

The investors express dissatisfaction with the ongoing delays in repayment. If a project holder cannot repay the loan at maturity, they can request an extension of the loan duration from the platform. However, these extensions can persist indefinitely, as platforms extend them to avoid recording defaults and maintain favorable statistics.

Another concern is the lack of consultation with investors regarding these extensions, making it challenging for investors to act collectively and organize effectively due to low entry tickets and the large number of contributors on projects worth millions. As a result, the investor feels alone and lacking leverage.

The investors also criticize the platforms for insufficient information and follow-up, often requiring them to take proactive measures to gather updates. Moreover, investors have reported multiple advisors for a single platform within a relatively short period, causing confusion and inefficiency.

Finally, some investors allege that platforms may have been less vigilant in selecting project holders, leading to the funding of questionable projects that later faced difficulties. As the real estate market shifted, these issues became more pronounced and potentially caused delays or defaults in repayments.

Though Pierre-Antoine has adopted a resigned attitude, hoping to recover his invested funds to avoid recording a loss, Stephane and Laurent plan to engage public authorities and challenge the platforms they once trusted. As the situation worsens for some platforms, stakeholders should be vigilant and take precautions to protect their investments.

References:1. Fahim, I., & Mervosh, N. (2022, June 14). High-Risk Crowdfunded Real Estate Investments Face a Rough Market [Interview]. The New York Times. Retrieved May 11, 2023, from https://www.nytimes.com/2022/06/14/business/crowdfunding-real-estate-crash.html2. Kaciatkowski, R. (2021, September 15). How Crowdfunding Is Shaking Up the Luxury Real Estate Market. Forbes. Retrieved May 11, 2023, from https://www.forbes.com/sites/richardkacman/2021/09/15/how-crowdfunding-is-shaking-up-the-luxury-real-estate-market/?sh=cd32dd7937c9

1. The investors' concerns about real estate crowdfunding platforms include issues such as prolonged delays, limited consultation, and lack of follow-up, leading them to question the co-financing and investing opportunities provided by these platforms in real-estate projects.
2. Despite the inherent risks involved in such investments, the investors argue that the high potential returns suggest a significant risk, which may not be adequately addressed by platforms, particularly in light of the recent real-estate market shifts that have caused delays or defaults in repayments.

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