Rather than rely on corporations or institutional investors, some French property developers are looking at new ways of financing property development in the country. Crowd funding is being used as a new way of generating cash; with individuals stumping up initial funds and once it has been completed and the lots sold, they share profits.
Music, video games and even small neighbourhood shops have been created and built using this new-age style of investment. Now it is property’s turn. Anaxago, one of the ten French platforms inviting visitors to invest capital in the crowd funding business, is a a bid dedicated entirely to bricks and mortar.
The principle is simple: real estate developers generate a shortlist of individuals, invite them to participate in the financing of their program. Once it has been completed and the lots sold, they share profits.
“We fulfil two needs. Investors who seek to diversify their investments and developers, who are finding it more and more difficult source the capital needed to start their projects”, explains Joachim Dupont, a founder of Anaxago.
The Federation of Real Estate Developers abounds. “We hear everywhere that the market is awash with liquidity and yet we have more and more difficult to find funding. Crowd funding is an innovative way of facing this,” said Francois Payelle, its president.
NEW MODE OF FINANCING
Before they launched officially, Anaxago carried out a test project with the Montpellier Kalelithos company. “In just forty days we raised €1.8 million from fifty people. A higher amount than what we expected and in a much faster timeframe,” says Olivier Cantrel.
Of course the idea to use the “crowd” to finance real estate projects is not new. Wiseed, Anaxago a competitor launched this concept there are more than two years. And it’s been 18 months since Lymo.fr, a promoter of the Toulouse region, raised funds that way.
“In this business, the sponsor must provide 20% of the transaction amount, if the bank does not agree to fund the project. So we clearly need to clean funds,” says Jean-Baptiste Vayleux, a leader of Lymo.fr.
The site has raised just over €900,000 since its launch of five operations. It has since completed two of the projects, which allowed him to repay the investors and their pay 10% of promised interest.
To attract individuals, developers cannot rely solely on the passion of the French for bricks and mortar; therefore they promise good returns for those who invest. “This high level is justified by the risk-taking”, says Vayleux.
“This industry is highly regulated and governed by many standards and obligations, allowing us, in France, to have a very low breakage rate,” says Mr. Payelle. “Moreover, we are only starting the programs when we pre-sell half the lots to traditional buyers. At this level, then it is almost impossible to lose money on a program. ”
To limit further risks, Anaxago promises between 6-12% yield according to the duration of the operation, has partnered with a group that specializes in insuring property developers. It is this entity which is the first filter in the selection of projects, ensuring that the projects are indeed viable. Only time will tell if the system works, but as always, if investors wait until then to try it, they might miss out…