The global outbreak of the Covid-19 virus and its effects are impacting the whole economy as well as our business. We thought it would be prudent to share our thoughts on the situation.
How does the Covid-19 impact the Business model of Estateguru?
First of all, we’d like to emphasize that the real estate market and our financing activities are mostly local and investors’ activity is online. This means that our sector is not the one that will be suffering the most in this current situation. Furthermore, alternative property-backed financing is a much-needed tool for companies in these turbulent times, as it provides the perfect solution for creating liquidity and executing business plans. Current countermeasures put in place by governments should be sufficient to keep the economic consequences of CoVid-19 confined to travel and leisure industries. As the situation changes constantly, we are monitoring and analysing it daily and are ready to act accordingly. While mild changes in investors’ appetite can be seen, EstateGuru has swiftly adapted to the situation and adjusted its risk assessment and loan criteria accordingly.
How can EstateGuru continue to operate its daily business activities?
Our investment platform is 100% digital, and you can use every part of it on your computer, from the comfort and safety of your sofa, without leaving your home. To further ensure platform stability, we have established certain operational safety measures. Since the outbreak of CoVid-19, we’ve worked from our home offices and our entire team is ready to carry on their full duties remotely. 90% of our processes are automated and we have dual service providers in key business areas, which guarantees that if one provider is not able to offer the service, we can switch over to the other at a moment’s notice (e.g. Onfido and Veriff). The financial health of EstateGuru continues to be strong. In anticipation of the potential effects of the virus outbreak, we adjusted our cost model early on in the process – without decreasing our human resources. EstateGuru’s business model was born during the previous crisis and we are confident that the applied expenditure model will help us exit the crisis even stronger.
Are the investments safe on EstateGuru platform?
EstateGuru has always taken conservative risks while funding projects – our average LTV (Loan to Value) is only 58% and in the majority of cases, we have taken personal guarantees from the borrower’s representatives on top of the real estate collateral. We are adapting to the changing environment and lowering the risk levels where needed. The default rate will temporarily rise to some extent, BUT we are putting extra effort and extra manpower into loan recoveries in order to keep the investments safe. Our historical track record of capital loss is 0% and investors have earned an average over 10% return from recovered loans. Our stress tests show that investors with diversified portfolios will not lose their capital even if the defaults rise to 30% (currently 5,7%) and real estate prices drop by 40%.
Regarding adapting the market situation and our risk policy we would like to emphasize following points:
- We have remained conservative
- Property values have always been based on “as is” values
- We mainly finance against first rank mortgages with very few exceptions
- Concentrating on strong borrowers and liquid collaterals
- Concentrating on metropolitan and growth areas
- Due diligence with more negative stress tests in every case
- We are preferring residential real estate and liquid commercial real estate
- Land developments are exceptions
- LTVs take into account the crisis and are with an extra buffer
Are your funds safe in your EstateGuru virtual wallet?
All available funds you have on your EstateGuru virtual account can be accessed at all times. These funds are being kept fully segregated from the company’s assets, on another bank account in another bank (LHV). All deposits and withdrawals will occur on a regular basis with no disturbances.
In conclusion: Crowdfunding, born as a result of the last major financial crisis, will play an essential role in easing the current situation by helping companies to raise much-needed financing. One of the challenges of this crisis is not an absence of capital per se, but the inability to provide or access funding fast mostly due to execution risk, e.g. face-to-face interactions with bankers, public notaries, etc. Crowdfunding is the best solution as it can be executed online in a manner which keeps the public safe.
We are monitoring the markets and the situation daily and will do everything in our power to provide the best service possible.
Wishing good health to you and your families