Switzerland is one of the countries whose actions contribute to the development of the participatory financing at the global level.
The University of Lucerne had also published in 2018, a study in connection with Switzerland and the participatory financing market. According to the information gathered, more than half a billion CHF have been collected by the country thanks to this system.
Thus, Switzerland has become the largest European market for participatory financing, ahead of Finland and Germany.
We are witnessing a strong growth of this financing model highlighted by contributors’ support for SMEs and real estate projects.
Therefore, find out in this article, Why is participatory financing a real investment alternative in Switzerland?
What is participatory real estate financing?
The idea is simple. It is to raise funds from investors In Switzerland, real estate can be divided into different types of condominiums. In Switzerland, real estate can be divided into different co-ownership shares. Thus, the same property can have several co-owners.
Also called real estate crowdfunding, real estate participatory financing is a combination of two principles:
- Participatory financing
- The yielding real estate acquisition.
Participatory financing democratizes real estate investment and facilitates access to investors, allowing them to project themselves in the realization of their real estate project thanks to the strength of the collective. Moreover, the economic situation is favorable and supported by the crowdinvesting and crowdlending.
Crowdinvesting allows contributors to give money to a company to receive, in exchange, a stake in the company or a share of the profits.
Crowdfunding consists of submitting a request for financing to numerous lenders. In exchange, they are reimbursed by the payment of interest.
Who is participatory real estate financing for?
This method of financing is aimed at people who have savings but whose beliefs led them to think that investing in real estate was reserved only for a certain elite.
The model proposes to the investor to be an owner a share of a building or property, up to a financial participation. At SIPA Crowd Immo , for example, the entry ticket is around CHF 49’000.
For each operation, we create a dedicated limited company. A limited number of investors acquire a part of this company. In this way, our clients become shareholders of the company and thus indirectly co-owners of the building.
We buy investment properties and take care of all the administrative, legal and mortgage-related aspects of their acquisition.
Once a year, we hold a general meeting at the end of which we pay a dividend to our clients in proportion to their investment.
In this way, we create value for our investors by enabling them to generate attractive and stable net returns (between 5 and 7% / year).
What are the advantages of participatory real estate financing?
The advantages of participatory real estate financing in Switzerland are numerous.
Indeed, it is possible to invest with an accessible equity amount. Indeed, from CHF 49’000, SIPA Crowd Immo offers the possibility to integrate a participatory building acquisition project.
It is important to know that since 1er As of January 1, 2020, the FINMA (the Swiss Financial Market Supervisory Authority) requires anyone wishing to purchase a property in Switzerland to contribute at least 20% of the purchase price in the form of equity (of which a maximum of half can come from the 2nd pillar).
The amount of the mortgage debt must be reduced to two thirds of the market value of the property, at the latest over a period of 15 years. In addition to the equity, it is necessary to add the acquisition costs, which vary from one canton to another, but they are around 3% in the canton of Valais and 5% in the canton of Vaud. These acquisition costs are paid directly by the buyer and are not included in the price of the property.
Banks are also applying these measures to freehold apartments (PPE) intended for rental.
The amounts required to have access to property are therefore very important and it is easy to understand why participatory real estate financing is a real investment alternative.
Another decisive factor is the debt ratio to obtain a mortgage to acquire a performance property. Only, to guarantee the self-supporting investment, it requires an exceptional property, even untraceable. In this case, the banks consider that there is a « rental shortage » which you will have to cover from your own income.
A chance once again that participatory real estate financing exists.
Risk reduction
Indeed, the participative purchase of a building will reduce the risks thanks to the high number of lots.
You are guaranteed to benefit from a higher or lower net annual return depending on the amount of your participation in the investment (and depending on the real estate project), compared to a traditional real estate purchase.
There has also been an increase in the number of regulations around crowdfunding platforms to protect contributors from high risk of loss.
In fact, some real estate companies explain to acquire properties already rented and whose rental notifications are accepted. Thus, they protect themselves from the risk of rent disputes and do not require an increase in order to offer yield solutions to potential investors.
Banks also recommend participatory financing because buying an apartment and then offering it for rent can represent a greater risk than being a co-owner of an investment property. Moreover, the loss of income due to the non-payment of rent by a tenant is absorbed by all the co-owners.
For all these reasons, we understand better how participatory real estate financing represents a real investment alternative in Switzerland.
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