Transparency about risk matters just as much as reporting returns. That is why Estateguru stress tests its loan portfolio at least once a year: we model what would happen to investors’ capital if market conditions turned sharply against us, and we publish the results. This post explains how the exercise works and the assumptions behind it.
What the stress test measures
The stress test estimates the maximum potential capital loss on the outstanding principal of the loan portfolio. It covers the entire portfolio at the time of testing — performing loans, loans in arrears, and loans in default.
Two scenarios
The scenarios are built around the key risk drivers of a secured real estate portfolio: collateral values, enforcement timelines, and borrower solvency.
- Conservative scenario. For loans already in payment default, we assume the collateral value falls by 50% from its market value at loan origination, with resolution taking 60 months. For performing loans and loans in arrears, we assume a 25% decline in collateral value and repayment after 24 months.
- Optimistic scenario. For defaulted loans, we assume recovery at the collateral’s market value at origination, with resolution within 36 months. For performing loans and loans in arrears, repayment at origination value within up to 12 months.
In both scenarios, enforcement and sales fees of 5% are deducted from the collateral value, which is then discounted to present value at a 10% annual rate over the assumed resolution period. For each loan, the capital loss is calculated as the difference between the outstanding principal and the projected recovery. Results are then aggregated per country and for the portfolio as a whole, including the number of investors affected and their net result, with interest already paid to investors taken into account.
Results
The table below shows the maximum potential principal loss per country under each scenario, as a share of the outstanding principal at the time of testing.
| Country | Outstanding principal | Conservative scenario | Optimistic scenario |
| Germany | €71.5M | €35.4M (49.4%) | €0.6M (0.8%) |
| Finland | €24.2M | €12.6M (51.9%) | €0.9M (3.6%) |
| Lithuania | €34.9M | €15.6M (44.7%) | €4.1M (11.9%) |
| Latvia | €29.0M | €7.6M (26.0%) | €1.7M (5.8%) |
| Estonia | €34.6M | €3.3M (9.5%) | €0.2M (0.6%) |
| Portugal | €3.0M | €0.0M (0.0%) | €0.0M (0.0%) |
| Portfolio total | €197.2M | €74.4M (37.7%) | €7.5M (3.8%) |
After taking into account interest already paid, the net loss attributed to investors affected by principal losses on these loans would total approximately €19.9M in the conservative scenario and €0.3M in the optimistic scenario — around 10% and 0.1% of the outstanding principal, respectively. Even in the conservative scenario, interest already received absorbs a large share of the modelled principal loss, demonstrating the resilience of investors’ portfolios.
It is worth underlining what these figures are — and are not. The conservative scenario is deliberately severe. It describes a modelled worst case under fixed assumptions, not a forecast of expected losses.
How the results move with the assumptions
The sensitivity analysis confirms the direction in which each assumption pulls the outcome. A higher discount rate reduces the present value of recoveries and worsens the results. Larger deductions from collateral market values increase losses. And the longer it takes to resolve a loan, the greater the loss, as proceeds are discounted over a longer period.
Ongoing review
The methodology and assumptions are reviewed at least annually.
