COVID-19: Real estate crowdlending opportunities in these times of crisis
Investors face panic
Following the plunge in stock markets and financial markets, share prices continue to plummet as companies slow down operations or close temporarily. According to UN Secretary-General Antonio Guterres, this is the worst global crisis since the Second World War. Investors are looking for safe havens in the face of the scale of the phenomenon. The sharp rise in the price of gold, now approaching $1,650 on the Comex market in the United States, bears witness to their ultra-defensive positions. Risk aversion has increased on the markets since mid-January, with the general panic effect driving investors to liquidate their stocks and bonds, turning to less risky investments. So, which type of investment should we turn to?
What about real estate investment?
With its reputation as a defensive sector, real estate has not been spared by the panic that has gripped the financial markets. However, thanks to its resilience, real estate not only mitigates the consequences of the crisis, but also enables investors to take advantage of advantageous conditions to continue investing in a market where assets are trading at a discount.
In fact, funds launched at the peak of the crisis in 2008 have, on average, outperformed pre-crisis vintages - the date on which a fund was launched. This in itself is no surprise, since the stress on the markets made acquisition prices more attractive for any player willing to offer liquidity. The real challenge lies in finding investors willing to commit to a fund in a crisis situation.
Which real estate assets to choose?
In the short term, commercial space - specifically hotel, restaurant and retail space - is most at immediate risk of rent losses. The forced shift to telecommuting and e-commerce could have a negative impact on office and retail space. If we consider that certain habits will persist post-confinement - teleworking, online ordering - the need for dedicated space will be impacted by a reduction in demand for this type of property.
On the other hand, the relocation of production and storage chains closer to the consumer could have a positive impact on logistics centers and craft premises in the longer term. This trend has already begun, but should accelerate in the current environment. As for residential rental property, and as its history proves, it remains the defensive sector par excellence, with minimal risk-taking.
Lastly, the real estate development market should fare well, with very low inventory in France due to the low number of permits granted ahead of the municipal elections. This shortage of supply should keep property prices up in this sector. Switzerland does not benefit from this cushion. If the current crisis continues for too long, sales of residential condominiums (PPE) will plummet, creating liquidity problems for the most vulnerable developers.
Crowdfunding, a digital lever for investing in real estate
The accelerating digitization of the economy is an undeniable consequence of government containment policies. The investment sector is also impacted by the rise of digital platforms such as crowdlending.
Crowdfunding enables individuals and institutions to finance projects via digital platforms, by means of interest-bearing loans. An alternative investment tool and an integral part of the fintech ecosystem, crowdlending represents a new generation of lending. This digitalization is a real lever for accessing the liquidity of assets such as real estate, which are traditionally considered illiquid or difficult to access.
In Switzerland, several players are active in this market and offer this type of investment. Wecan Tokenize, a tokenization platform, and SwissLending, Switzerland's leading crowdlending platform, offer investment projects in residential rental property and real estate development. These projects are methodically selected with a high level of pre-commercialization and administrative risk.
In view of the current situation, notarized sales for private individuals have been suspended. However, they may be resumed as soon as confinement is relaxed, or via electronic signature, for example. Institutional sales are still taking place. The relationships of trust built up over the years between professionals ensure continuity of business, made possible by digital tools.
Taking advantage of the crisis
It's hard to predict the precise impact of Covid-19 on the global economy and finance, but it's important to remember that any crisis can be a source of opportunity.
Although impacted by the effects of the pandemic, certain real estate assets coupled with the possibilities offered by digital technology represent investment opportunities. While the slowdown in economic activity is having a negative impact on retail and office space, residential rentals, logistics centers and real estate development are expected to weather the crisis well.
As the sector is both a market with a reputation for low volatility and lower risk-taking, the discounting of assets in response to the current crisis allows for the kind of arbitrage that many investors took advantage of in 2008.
However, times of crisis call for caution, and all the more so for careful attention to rigorous selection criteria. The reputation of project promoters and financial transparency are just some of the criteria used to select genuinely viable projects for real investment opportunities.
