The coronavirus pandemic that started in 2020 is still ongoing, despite the vaccine rollout. As expected, the global economy took a huge hit, and many industries suffered. One of them was the real estate industry. Although there weren’t just losers but winners as well, the industry felt the effect of the pandemic all across the board. Real estate crowdfunding also saw a shakeup.
When massive macro-economic dislocations happen, some companies adapt fast, mainly by laying off staff, while others find a path to new opportunities. Bear in mind that this was the first real crisis that the crowdfunding sector experienced since it came to be in 2014 when the JOBS Act (Jumpstart Our Business Startups Act) was introduced.
What happened is that, even with some advances in the middle of the pandemic, newer investors were exposed to the pitfalls of crisis periods for the first time.
While some crowdfunding financial models saw a lot of pressure, some had sponsors stop paying dividends, while others lost some deals to lenders.
Let’s take a closer look at where we are at:
The Crowdfunding Crisis Was in Works For a While Now
The property crowdfunding sector was due for a reckoning during the next crisis anyway. The young real estate investing model had some flaws in its business models, for starters.
It was clear that not many players in the crowdfunding field had overall real estate investing experience. But even though a correction was in the works, no one could’ve predicted it would come so suddenly and in the form of a deadly pandemic.
What Comes Now For Real Estate Crowdfunding?
As we have mentioned, one of the most significant consequences was the staff layoffs and share redemption suspensions.
Platforms continue to struggle in the effort to save money and survive the crisis. Some have already fallen victim, and it was expected that this would be the case. Every industry in history goes through such cycles.
Many investors hit pause on investing in commercial real estate (CRE), so CRE transaction volume fell naturally. The crowd-pooling industry felt this change, so it was strange to see some platforms continue offering crowdfunding options. Like nothing happened!
Sure, it’s not impossible to find a good deal when times are tough. But it’s also becoming harder to distinguish bad deals from good. Investors with experience can spot faulty and fake investment deals with ease, but the crowdfunding industry is full of novices simply not equipped with such knowledge.
And thus, we come to a fundamental flaw in the crowdfunding model of financing: many crowdfunding companies have to continue actively offering deals to stay in the game and remain profitable. No matter what the (pandemic) circumstances. That means more risk for your average investor.
Nevertheless, we cannot help but show enthusiasm for the ever-persisting crowdfunding sector. So if you are into investing together with other property enthusiasts – by all means, go for it! But it has never been more critical to invest responsibly. That means picking a real estate company that has done its due diligence before offering “enticing” opportunities. You have to be sure that you are talking with company representatives that will take care of your money.
Exciting Growth Opportunities Ahead?
We peeked at the new “Global Real Estate Crowdfunding Market Outlook 2028”. The researchers predict that the worldwide property crowdfunding sector will grow with a CAGR of 33.4% during the forecast period of 2020-2028.
The real estate sector segment is usually categorized into two main groups: residential and commercial sectors. Out of these segments, the residential sector is predicted to grab the most significant marketplace share by the end of this year.
We’re excited to see what’s ahead and which predictions will come true. To stay in the know and get more exciting news such as this, follow our blog!