Analyzing the EstateGuru Loan Portfolio – Summer 2019

The last year has been one of unprecedented growth for EstateGuru, so we’ve decided to take another detailed look at our loan portfolio.

Since our launch in 2014, we have funded an incredible total of €136,289,338. Last year was by far the biggest in EstateGuru’s history in terms of loan volume.

As part of our mission to give our investors as much diversification as possible, we offer loans on projects in six European countries, Estonia, Latvia, Lithuania, Finland, Spain and Portugal. Of these, Estonia is still the largest market, as it was in 2018, although the margin has shrunk significantly, with Latvia and Lithuania both showing healthy growth.

NB! Loan portfolio as of 13.08.2019

Loan types

The EstateGuru loan portfolio is comprised of three types of loans: bridge loans, development loans and business loans.

Bridge loans are defined as short-term real estate loans that provide the property owner with the necessary capital until a permanent solution for financing becomes available. A development loan is used to develop the property and ranges from construction works to excavation works, i.e. development of area infrastructure, including utilities and roads. A business loan is a mortgage loan that is used to finance the capital needs of a company’s expansion and is secured with collateral that the company owns.

Of these three types, bridge loans are the most popular, making up 45% of the total, and their percentage of the whole portfolio has been stable (44% in 2018).

The biggest growth area can be seen in development loan category, which is up to 26% versus 19% in the previous year.

Business loans take up a smaller percentage in 2019 than last year, down from 38% to 29% of the total.

Graph 1. Outstanding loan portfolio by loan type (%)

Loan book by country

As the country where EstateGuru launched, Estonia remains our biggest market, taking up 58% of our total portfolio. As anyone who has visited the country knows, Estonia is undergoing rapid economic growth, and this is reflected in the amount of construction and development projects in the country. As the population becomes wealthier there is a real need for new residential and commercial buildings, with the affluent younger generation in particular looking for new-build or restored and renovated properties instead of the somewhat outdated Soviet-era architecture that characterises some neighbourhoods.

Latvia and Lithuania are experiencing similar, albeit slightly less robust, economic growth spurts, and this accounts for their larger shares in terms of overall loan volumes. The fact that we have established regional offices in these two markets also helped us to grow substantially. At 16-19% each, they make up our two biggest markets after Estonia.

Graph 2. Outstanding loan portfolio by country (%)

Loan portfolio by loan status

Both the number of loans and the loan amounts have increased significantly over the last year, in fact, the number of repaid loans has more than doubled from 148 in 2018 to 348 in 2019.

The percentage of loans funded from the total portfolio has shrunk from 98.0% to 89.8%, a consequence of an increase in late and defaulted loans (from 0% to 4,8% and from 2,0% to 5,4%, respectively). These late and defaulted cases are a part of the crowdfunding model and as the total loan amounts increase, so do the amount of insolvent borrowers. However, we have very robust processes in place to reclaim these defaulted loans and the percentage is still significantly below industry standards.

Graph 3. Loan portfolio by loan status (%)

Estonia accounts for most of our loan defaults (as the total portfolio is the largest), with some defaulted cases also in Latvia. No loans have defaulted in Lithuania, Finland or Spain.

Recently, we successfully completed the public auction of two defaulted cases in Estonia, bringing the total % of defaulted loans down a bit. The Kiviloo Manor refinancing loan and Kohila mortgage loan were successfully recovered with a total sum of €623 000.

To read more about our risk management strategy and how we secure loans to protect against default, visit this blog.

EstateGuru loan portfolio security types

As an extension of this effort to give our investors the very best security possible, 93% of all EstateGuru loans are secured with a first rank mortgage, which is 1% less than in 2018. This means that, in the rare case of default, EstateGuru’s investors have the first rights to the proceeds of any collateral sale that might be enforced by the court.

Graph 4. Loan Security types (%)

When it comes to the types of collateral, we see a shift against 2018 which aligns with the changing patterns of loan types.

Residential properties as collateral have shown the largest drop, from 50% in 2018 to 46% in 2019, although it is still the largest percentage.

Commercial properties like office blocks and retail space as collateral are the big growth area, rising from 21% in 2018 to 27% in 2019, making it the second-largest type of collateral supplied against EstateGuru loans.

Land has remained somewhat steady, decreasing just one point to 26% in 2019, meaning it drops down to third place.

This trend illustrates how the collateral offered against loans shows increased liquidity and security.

Graph 5. Loan collateral types (%)

Projects by country

Reflecting the fact that most of Estonia’s economic activity takes place in the capital, Tallinn and its suburbs account for the overwhelming majority of projects funded in Estonia. Two-thirds of all EstateGuru loans funded in the country are in Tallinn, but this 67% number shows a decline against 74% in 2018. Tartu and Parnu occupy second and third place, at 17% and 12% respectively.

Graph 6. Project allocation – Estonia (%)

Latvia shows a similar situation to Estonia, with 63% of all projects occurring in the capital Riga, while Jurmala comes in at a distant second with just 8% of all projects funded.

Graph 7. Project allocation – Latvia (%)

Lithuania shows by far the most diversity of the three Baltic states. While the capital city of Vilnius (35%) is understandably the largest market for developments, it is closely followed by Kaunas(21%) and Klaipeda(25%).

Graph 8. Project allocation – Lithuania (%)

Conclusion

With over €136 million in loans funded to date EstateGuru’s loan book is looking better than it ever has. We have some major plans for the next year, from expanding the number of countries we operate in, to an ambitious hiring and development plan, in order to become the leading ecosystem of property finance and wealth management, to merge the EU property finance market and make it more efficient and transparent

EDITED ON 16.08.2019

Changes: All graphs were redone to portray the outstanding portfolio instead of the total portfolio. This means that repaid loans were taken out from the equation. We feel like this change more accurately represents the current status of the loan book.