I’d like to begin by expressing my immense gratitude to our investors, partners, and our team for the trust you’ve shown in our platform, which has remained constant even in the face of uncertain macroeconomic conditions. I am glad to welcome you to another year full of new and exciting crowdfunding opportunities.
There were many lessons to be learned and adjustments to make in 2022, as we contended with volatile markets, rising inflation and soaring interest rates. As part of these adjustments, I have moved from my former position as COO, into the role of group CEO, as of December, 14 of 2022. Marek Pärtel will continue on as Chairman of the supervisory board, and I would like to extend my thanks to him and the board for the faith they have shown in me. I’d also like to say how proud I am of the dedication and versatility the whole team has shown in these testing times.
Below I will share the main challenges we faced together in 2022, and provide an overview of the new developments and opportunities we are looking forward to in 2023. Recent events have tested the principles that inform our approach to crowdfunding, and also proved them consistently sound. We are at the cutting edge of our industry, and these experiences will help us to further refine our model.
And so it is with great confidence that we look ahead to the future. I have no doubt that together we can continue to realise our ambition of making property financing and investing attainable for anyone, anywhere in the world.
Mihkel Stamm, CEO
Key facts about Estateguru
- Founded in 2014
- Active markets: Germany, Finland, Estonia, Latvia, Lithuania
- 153 800 investors using the platform
- €679 M worth of loans funded, with €292 M currently outstanding
- €57 M earned by investors
An Annual Review of 2022
Estateguru, the leading Pan-European property investment and financing platform, started 2022 in a strong, growth-oriented position after successfully entering the German market a year earlier, with plans for further expansion into the Spanish and UK markets.
As we all know, it turned out to be an incredibly turbulent year, with rising inflation, market disruption, increased geopolitical risk and soaring interest rates. All of these factors had a direct impact on investor behaviour, the real estate market in general, and the capacity of some borrowers to return their loans in accordance with initial plans.
- €183M in sales volume, 10% less than 2021
- 1769 loans funded, 1365 loans outstanding
- 44 888 new investors joined
- €291M outstanding portfolio
- 59,86% average LTV, on outstanding portfolio 58,21%
- €104,74M returned to investors, with an average return of 10%
Return by country in 2022:
View more statistics here: https://app.estateguru.co/statistics/
Investor’s View
During the Q4 of 2022, our investors funded 513 projects, with a total amount of over €40M, as Estateguru introduced a consistent stream of new and carefully selected investment opportunities onto the platform. You can view the latest loans on the platform here: https://estateguru.co/investor/
While according to some analysis, the real estate market may remain fragile for the next six to twelve months, it is important to bear in mind some key features that safeguard investments on the Estateguru platform, and the figures that indicate they are working.
- 98% of our loans are secured by a first rank mortgage and 2% with a second rank mortgage, which also provides adequate control of the borrower and project.
- Consistently low LTV, with an average below 60%, which provides a buffer in the event the collateral goes to auction.
- Collaboration with third parties and borrowers for loan exits and repayments. We have established a strong network of legal and default partners in all of our markets, for resolving problematic loans in a timely and optimal manner.
- Thanks to our dedicated risk team’s excellent track record of recovering loans in the Baltics, and Finland (we have recovered over €25M in an average period of approximately 12 months), investors have earned a return on defaulted loans at an average rate of 9%.
You can follow our monthly portfolio updates here: https://estateguru.co/blog/tag/loan-portfolio/
The Baltics: Another strong performance
The Baltic states are our most long established and important markets, and this is apparent in the business results and volumes for the year. Estonia produced its record volume, growing 29% compared to the previous year, while defaulted loans remained at 3,09% and partially recovered loans stayed at 1.63%. The total loan volume for the year in Estonia was €69,19M. We expect to strengthen our market share in 2023.
We continued to see a quality increase in the Latvian portfolio, and a corresponding growth in investor appetite. We started the year with a legacy portfolio of defaults and partially recovered loans at over 12%, but were able to reduce this to 7.75%, while also maintaining low late loan numbers throughout the year. 2022 ended with 19% growth when compared with 2021. The total loan volume for the year in Latvia was €23,63M.
Lithuania is the best performing market in terms of portfolio quality. Defaults remained at 0% throughout much of the year. A more aggressive approach with some loans had to be taken towards the end of the year, however, which increased the default rate to 1,77%. This is a short term measure to mitigate against further losses. The local team was bolstered by the addition of several talented new professionals. Yearly volumes stayed on the same level as the previous year, at €34,5M.
Finland: Growth potential for the new year
It was a mixed year in Finland. We are still dealing with the problematic loans that originated before our local team was in place. As these were relatively large loans (almost €8M together), and given the lower origination volumes in Finland this year, they are heavily affecting the Finnish portfolio metrics, and pushing up the default rate to 34,7% (€14,9M). We have adjusted our credit rules, and the more recently originated loans are of a higher quality.
Growth in the Finnish market has been limited, as we were focused on resolving the problematic cases mentioned above. We strengthened the team by onboarding a new country manager with more than 20 years of experience in the real estate sector, which resulted in stable loan volumes in Q4. The year ended with similar volumes (€22M) to the previous year (€23M). We also shifted our focus to smaller projects and this change in strategy has helped to stabilise the volumes at €2M. We see good growth potential for Estateguru in Finland, in 2023, as some competitors have left the market. We have also noted an increase in interest in Finnish loans from institutional investors.
Germany: A work in progress regarding problematic loans
The current German portfolio consists of €85,2M in outstanding loans, with 37.86% being late in payments and 38.42% in default. It is important to note that the market was very different a year and a half ago and many financial institutions in Germany (including our competitors) and elsewhere are suffering similar challenges. The decision to scale up was very much in line with Estateguru’s strategy at the time. We should also note that we are currently in the process of investigating possible violations of our internal regulations by some members of our German team during the years 2020-21.
We have therefore decided to temporarily halt (for at least the next three months) the introduction of new German investment projects on the platform, so we can focus on implementing comprehensive measures for the remediation of the problematic subsection of the portfolio. Our aim is to maximise recoveries for retail and institutional investors and stakeholders, so as to ensure their continued faith and trust in funding loans on the platform. We also hope to introduce new stages from performing loans, so that the projects can be completed. Once we have recovered the loans and improved the portfolio, we will begin the process of introducing new loans in Germany.
We have made significant changes to the management of our German operations, with Mr Kaspar Kaljuvee, one of Estateguru’s founders and the previous CRO of Estateguru group, joining the management board and taking the lead there. The team was also strengthened by the addition of one of our longest serving Country Managers, to support operations and recoveries.
The 5 most important factors that will influence the crowdfunding market in 2023
- Joint financing volumes are currently projected to remain stable at similar levels as in 2022, still slightly below the volumes of 2021.
- We expect to see more cautious investors returning to crowdfunding, with the successful completion of existing loans being an important factor in determining how quickly this happens.
- As the banks are retrenching, we see growing opportunities to select and underwrite good quality investments, with high liquidity and strong collateral, for inclusion on the platform.
- The rise in interest rates will lead to increased interest in crowdfunding amongst borrowers and promises better returns for investors early in the year.
- All market participants will have to apply for a pan-European licence as the two-year transition period ends in November 2023. We at Estateguru welcome the change as the new licence will usher in a more mature and regulated crowdfunding market, and bolster investor protections in the process.
Changes in Estateguru’s strategy
Throughout the year 2022, Estateguru demonstrated its flexibility in turning its expansion-oriented approach into an efficiency focused business model. The corporate focus and commitments for 2023 are to resolve the German and Finnish legacy portfolio, to maximise returns for investors, and to focus on sustainably growing origination strategy and investment in the Baltics.
Several important decisions were made and implemented during the second half of 2022. While we remain strong in the Baltics and Finland, the planned expansion to new markets, such as the UK and Spain, has been postponed. We plan to re-evaluate the situation in the 2nd half of 2023.
We took the very difficult but much needed decision to reduce the number of our international team members by more than one third and cut external development costs in a bid to bring about a significant increase in Estateguru’s profitability in Q1 of 2023. These cost cutting measures were necessary to secure the company’s sustainability amidst the current market turmoil and safeguard its continued success. As always, we took all of these steps with our investors, and the success of their investments, firmly in mind
Overall, it’s been a tumultuous year. Adjusting to volatile macroeconomic conditions has presented many challenges. Switching from a growth to a sustainability mindset and downsizing our operations in certain markets has not been easy, but with adversity comes the opportunity for learning, and growth of a different kind. We will continue to provide regular portfolio updates to demonstrate the progress that has been made, and to ensure that our investors and stakeholders are kept informed.
As we enter the new year, we remain confident in our business model, and dedicated to our vision of making profitable investment possible for anyone, anywhere. Real estate remains a massive market for investment globally, and we will continue to bring new, profitable and transparent investment opportunities, secured with real estate collateral, to our investors.
