Are you considering investing in real estate crowdfunding but unsure if now is the right time? This article will help you understand the optimal timing for investing in real estate crowdfunding by analyzing market conditions, interest rates, and real estate trends. Making informed investment decisions requires a thorough understanding of these factors.
Determining the best time to invest in real estate crowdfunding is straightforward. The ideal time is when returns are high and risks are low. This principle applies to various investment tools, including property-backed loans.
Currently, real estate crowdfunding offers some of the highest returns in history, exceeding 10% for property-backed loans. These returns surpass those seen during the post-2008 financial crisis when crowdfunding began gaining momentum. High returns make this an appealing option for investors in the current market. The next question is whether rates will continue to grow or will start to fall and to understand that we need to understand why rates went up in the first place.
One of the main drivers of these high returns is the elevated EURIBOR rates. EURIBOR, the rate at which banks lend money to one another, significantly impacts borrowing costs across Europe. With higher EURIBOR rates, funding has become more expensive for all types of borrowing, including crowdfunding.
Predicting future interest rates involves some uncertainty. However, most indicators suggest that rates will decrease over the next few years. Let's explore the factors influencing these expectations.
EURIBOR rates are crucial for the European financial market. The European Central Bank (ECB) influences these rates through its monetary policy. Forecasts indicate a downward trend for EURIBOR, supported by potential ECB rate cuts and decreasing inflation in the Eurozone. Investors should monitor ECB announcements, inflation trends, and overall economic conditions to gauge future movements in EURIBOR.
Several factors influence EURIBOR rates, including:
Given that real estate crowdfunding rates are generally fixed and not floating, now may be an opportune time to invest. Locking in high returns while interest rates are expected to fall can provide significant financial benefits, but let’s have a look at risk first.
Assessing the overall real estate market risk is essential for informed investment decisions. Let's examine the current state of the European real estate market, focusing on residential properties.
The European residential property market is poised for varied recovery in 2024. While challenges such as rising debt costs and low investment activity linger, opportunities are emerging across different regions and property types.
Germany: The German residential market remains robust, with expected price increases between 1-3% driven by strong cross-border capital and continued demand for quality rental properties (BNP Paribas Real Estate) (CBRE).
Denmark: Denmark's residential sector, particularly senior living and student housing, is undersupplied, offering significant investment potential. Lower central bank lending rates also make this market attractive (BNP Paribas Real Estate) (CBRE).
Spain: Spain's residential market benefits from a strong tourism sector, driving demand for hospitality-related properties. This demand is expected to support stable rental yields and potential capital appreciation (CBRE) (BNP Paribas Real Estate).
France: Despite the overall positive outlook, France faces unique challenges with high mortgage rates and supply constraints, which could lead to price declines. Investors should approach the French market with caution (CBRE) (BNP Paribas Real Estate).
Italy: Italy's residential market shows signs of stabilization, with growing interest in urban living spaces and recovery in major cities like Milan and Rome. Regulatory reforms and urbanization trends are expected to drive long-term growth (CBRE).
Netherlands: The Dutch residential market remains resilient, with strong demand for rental properties. Institutional investors are increasingly focusing on sustainable and energy-efficient buildings to meet ESG criteria (BNP Paribas Real Estate).
UK: The UK residential market is experiencing increased rental demand due to rising interest rates making homeownership less affordable. This trend is likely to continue, supporting steady rental yields and attracting institutional investors (CBRE).
Overall Trends: Affordability is set to improve across Europe, with wage growth outpacing inflation and potentially lower mortgage rates. This could increase homeownership rates and stabilize the residential market (CBRE) (BNP Paribas Real Estate).
In conclusion, the current high returns and favorable interest rate forecasts make it an attractive time to invest in real estate crowdfunding. However, investors should carefully monitor market risks and economic indicators to make informed decisions. The European real estate market presents numerous opportunities across various sectors, including office, logistics, retail, and residential. By understanding market dynamics and leveraging key insights from industry reports, investors can make strategic decisions to maximize their returns.
Could now be the best time to invest in real estate crowdfunding in Europe?
(Expert's Name, Position, Company, Opinion)
Janis Ozols, Partner | Valuation & Advisory at Colliers International LAT
As markets anticipate a decline in EURIBOR rates, potential buyers are delaying their purchases, making now an opportune time for investors to secure higher returns in real estate crowdfunding before anticipated rate reductions. Diversification into sectors like student housing, co-living, and senior housing has proven economically viable and attractive due to limited supply.
These markets are rarely saturated, leaving ample room for growth. Urbanization trends have reversed post-pandemic, increasing demand for sustainable developments—a positive shift for crowdfunding investments. In the Baltics, with new residential developments down and unsold stock fairly low, crowdfunding offers a strategic advantage for developers with higher risk appetites to build today for tomorrow's demand.
Most importantly, sustainability remains a crucial focus. While traditional banks favor existing properties with sustainability credentials, they are hesitant to finance new developments or conversions. This gap presents a prime opportunity for crowdfunding to fund projects that enhance sustainability, allowing developers to transform underperforming assets purchased at attractive prices and eventually refinance with traditional banks for substantial profits.
Currently, it is an excellent time to invest in real estate projects through crowdfunding platforms for several reasons:
Firstly, in the near future, we can anticipate a decrease in interest rates not only for deposits due to the declining EURIBOR but also on crowdfunding platforms. This presents a unique opportunity to invest now and lock in higher interest rates for a longer period. Investors can expect annual returns of up to 15% through these platforms, with loan terms typically up to 12 months.
Crowdfunding is no longer a novelty in the market; it has already earned trust among investors and real estate developers. Increasingly, we see large-scale projects on these platforms, with funding amounts exceeding several million euros. Even large investors, who invest between 500,000 and 1,000,000 euros per project, are participating. This provides less experienced investors with a great opportunity to invest alongside professionals.
Additionally, there is a noticeable trend among crowdfunding platforms to expand their loan portfolios by including projects from various countries. Profitus, for example, offers investment opportunities in projects located in Lithuania, Latvia, Estonia, and Spain. Other platforms are exploring expansion into markets like Portugal, Poland and etc.
Given the current geopolitical and economic conditions, this expansion provides an excellent opportunity for investors to diversify their portfolios by spreading their investments across different loans and countries. Such platform diversification allows investors to mitigate risks and capitalize on a broad range of opportunities in different real estate markets. This is particularly advantageous in today’s global environment, where economic and political factors can vary significantly across regions.
While it’s true that there is never a bad time to invest, those seeking to secure solid returns and maintain a balanced investment portfolio will find this period particularly opportune. Not only is it a great time to begin investing, but it is also an ideal moment to enhance one’s portfolio with a simple, user-friendly, and time-efficient investment instrument.
Igor Gorbatsevich, Head of Digital at Shojin
Whilst real estate crowdfunding is yet to become a mainstream asset class, it is certainly making strong progress towards this status.
Sophisticated investment products across different types of real estate asset classes, previously reserved for institutions and ultra-high-net-worths, are becoming more and more accessible to everyday investors. With smaller amounts of capital, through real estate crowdfunding, investors are able to allocate funds across multiple projects and geographical areas and spread their capital beyond conventional stocks and bonds to reduce risk through diversification.
Crowdfunding technology has empowered investors with a simple way to access detailed project information and a seamless user experience to transact and earn attractive returns previously unavailable to them. Investors no longer need to be tech-savvy to be comfortable with digital investment tools. Future integration of AI and machine learning will further optimize investor decision making and portfolio performance.
Increased regulatory requirements for platforms across Europe have improved confidence and made it safer for investors to participate. Platform licensing sets out clear rules to improve transparency, drive better standards and drive out rogue market players.
Ultimately, these factors make it a great time to start tapping into real estate crowdfunding as a source of passive income, as part of a diversified portfolio.
However, real estate crowdfunding is still in its infancy. Product standardisation is yet to be achieved to enable investors to easily compare projects and evaluate risks across different platforms and global products. Liquidity on individual platforms is low and there is no central secondary market, meaning that investors are unable to readily exit projects until maturity. Many platforms continue to struggle and fail due to operational inefficiencies, providing poor user customer service and in the worst circumstance, capital losses.
This is a natural evolution of a nascent market, the next stage of which will involve collaboration and consolidation of global platforms to make real estate crowdfunding a truly mainstream asset class. Even better times to invest are on the horizon.
This article is based on current data and indicators which may change over time. The situation could evolve, affecting the validity of the information provided. This should not be considered investment advice.
Remember: Direct and indirect investment in crowdfunding involves significant risks as there is a potential risk for loss of part or all of the invested capital. If you want to learn more about crowdfunding and what investment opportunities it offers visit crowdinform.com. It is all for now! Have a good day and wish you successful investing.