Lately, loans on the Max Crowdfund platform have been extending more frequently, mostly by about three months, but also up to six months or more. Delays in the completion of real estate projects is a phenomenon affecting not only Max Crowdfund users.Investors worldwide are experiencing similar delays. Why is this, and what can you expect?
Worldwide Delays
Delays with real estate projects are not new or unusual: red tape by the government, unavailability of materials, non-compliance with delivery times, delays in refinancing due to banks taking their time, buyer abandonment, etc., are all common in the industry.
A lot is happening worldwide on a macro level at the moment, so delays affecting real estate projects are even more understandable than ever.
Globally, the real estate industry was affected by project suspension in 2020, immediately followed by construction material supply chain issues in 2021 when global inflation caused delays in the shipment of materials. In January, inflation was at 5.1 per cent in Europe and 7.5 per cent in the US (the fastest annual increase in 40 years). Reuters reported, in its May 2021 survey, that the German IFO Institute found that 43.9% of builders reported problems purchasing building materials, up from 23.9% in April. In contrast, the construction industry will likely continue to be affected by the last two years of the COVID-19 pandemic, political unrest and global economic changes.
Despite the setbacks caused by COVID-19 and subsequent disruptions, real estate continues to draw investment against other asset classes. In fact, 2021 was a record year for real estate, with international commercial sales volumes surpassing the 2020 total by 59% and the previous peak in 2019 at 22%.
Extending a project's timeframe is not desirable to the developer, as it is almost invariably costly. Max Crowdfund borrowers therefore avoid loan extensions wherever possible.
Extension Procedure on Max Crowdfund
Since the launch of Max Crowdfund, borrowers have always been subject to strict loan conditions.They are obliged to inform the compliance team of any delivery delays, explaining the cause of the delay. Based on this information, we communicate with investors, providing information about the current and predicted state of affairs.
Unfortunately, developers' priorities and energies tend to lean towards renovation work, conversion and sale of the properties as opposed to communication with Max Crowdfund. As a result, we have on occasion received information from borrowers a little too late to inform the investors of changes on time.
To prevent this going forward, we have tightened up our loan conditions. Under the new terms, the borrower may request an extension at least one month before repayment. In addition, we always ensure that the entrepreneur continues to pay the interest during the extension; sometimes the interest rate is even increased. The new conditions are currently under review by the Board and will be shared in a separate newsletter.
When borrowers indicate that they wish to extend their loans, a voting system is set up for the investors in the relevant loan. Ultimately, the investors determine whether a loan will be extended or not.
Despite real estate industry delays, property remains one of the most stable investment categories. Max Crowdfund's projects are asset-backed so that, even with delays, the return on investment remains, as do the underlying projects.
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