Over the last few years, despite constant changes in the economic situation, more and more people have decided to build up their savings in the alternative investment segment by investing in real estate backed loans.
Brought on by the uncertain economic conditions and global crisis, you can see more and more invitations to invest and use all kinds of financial instruments to get the most out of falling stock market prices and various other factors. EstateGuru is one of the most popular marketplaces for building your real estate portfolio online and in a well-diversified manner across Europe.
Since the start of operations in 2014, EstateGuru investors have earned €17 million in interest payments! Today, more than 55,000 investors from all over the world have registered on the platform.
In this article, we offer a broader insight into the trends in investor behaviour and the differences between investors in the three Baltic States – Estonia, Latvia and Lithuania.
Note: While we refer to Estonians, Latvians and Lithuanians throughout this article in the interest of brevity and simplicity, it means investors who are geographically based in those countries, and could include several other nationalities.
It would be challenging to create an average profile of an investor registered on the platform, as one of the advantages of alternative investments is that building a portfolio does not require significant financial resources. Hence, the user base covers a wide variety of individuals, investment firms, banks, asset managers etc. It is possible to invest starting from €50. At the same time, you can make an informed decision on which pre-vetted project to invest in by using the available information published on the platform. That is why EstateGuru investors range from professional institutional investors to students and other people who want to take their savings to the next level with secured loans and significant profits.
By comparing the number of registered investors on the platform, it becomes clear that the most active investors are Estonians, which can be explained by the development of technology in the country as a whole, as well as the fact that the EstateGuru platform started operating in Estonia first. Latvians and Lithuanians are traditionally more cautious about new technologies and financial instruments, thus accounting for only 4.44% and 5.5% of the total number of investors, respectively.This data stands in opposition to the more general trends in these countries. A survey conducted by retailer Maxima in 2019 shows that Lithuanians are the most active savers – 82% of respondents save in Lithuania, 65% in Estonia and 60% in Latvia.
The amount of investment during the operation of the platform also clearly indicates the confidence and willingness of Estonians to invest in the most modern and accessible way possible. More than a third of all loans financed by the platform are sourced directly from Estonian investors. Investment levels of Lithuanians are also significant at more than €19 million, while investors from Latvia have financed only €6.8 million. It should be noted that a branch of the platform has been operating in Latvia since 2016, but in Lithuania since only 2017.The rapid growth of the alternative investment sector in the Baltics, and Latvia in particular, also points to a rather interesting cultural phenomenon – a general distrust of traditional banks. A survey conducted in Latvia by research agency Norstat found that only 14% of all respondents consider the bank to be an appropriate place for saving money. Unfortunately, the overwhelming method of choice for savings amongst older respondents seems to be cash, which offers zero interest or growth potential. Younger people are more likely to consider alternative investments.
In total, almost one million investments in 1,651 loans have been made on the platform to finance more than €220 million. Estonians invested nearly a fifth of this total, Lithuanian investors have chosen the desired project 53649 times, but investors from Latvia only 10212 times. Of course, the number of investments alone does not precisely reflect the desire of investors, so in the following graph, we have also compiled data on the average investment amount in projects.
Even though the number of investors in Latvia, as well as the total amount and number of investments, is the smallest in the Baltic States, Latvian investors invest the largest amount on average – €671,14, which is also 33% more than the average investment for investors from Baltic states. In both Estonia and Lithuania, the average investment is lower – €479,18 and €357.24, respectively. To more objectively determine whether the average investment amount indicates a higher investor willingness to invest or a smaller portfolio diversification, we also compare the average investor portfolio size in each of the countries.
In the platform as a whole, the average amount of the investor’s portfolio is €4928, as can be seen in the graph, in all Baltic countries this indicator is higher than the average on the platform. Investors who have chosen to allocate a larger share of their income to investments are in Lithuania, with an average investor portfolio of €501, followed by Latvian investors with an average of €6723 and Estonian investors with €6140. Comparing the average investments and the size of the portfolio, we see a tendency that Lithuanian investors make their investments responsibly by diversifying risks, investing as many loans as possible in smaller amounts, which is less typical for investors in Latvia and Estonia.
Diversification is an essential and effective way to reduce investment risk, and the EstateGuru platform allows investors not only to choose between different types of projects with different collateral properties but also to invest in 7 European countries. This diversification protects their investments from the risks associated with regional economic change.
Analysing investor behaviour, the features determined by the cultural and mental aspect are also visible. Investors from Estonia and Lithuania are more active and willing to try new ways to increase their passive income, while Latvian users still prefer more traditional savings tools and are more conservative in their investment choices.
In total, Baltic investors represent almost a third of all platform investors and have financed nearly half of the total funding amount during the operation of EstateGuru. The behaviour of EstateGuru investors over the last few years reflects the broader trends in the Baltic states. Strong and growing regional economies created populations with higher incomes who are looking for sophisticated and more rewarding investment opportunities than those offered by traditional banks. The expectation, however, is that all three economies will shrink due to the COVID-19 crisis. Swedbank’s most recent economic outlook study predicts that, contrary to what one might expect, the economic downturn will see an increase in savings, as people wary of the long-term economic effects look to safeguard themselves financially for the future.
Investors are moving towards alternative options across the Baltics, and the expectation is that they will continue to do so. During 2018, €1,082 billion was issued through alternative lending channels. This accounted for 8.27% of the all activity within the region as banks and credit unions issued approximately €12 billion.
EstateGuru expects investors in Lithuania and Latvia to catch up to their Estonian peers in the near future when it comes to numbers and volumes, which is why the Baltics remain a key focus for us.