How does EstateGuru manage the COVID-19 situation? We talk with Bert Reila.
COVID-19 has a significant impact on the economy, and the P2P industry is no exception. As one of the major P2P lending platforms EstateGuru will inevitably be affected. Having its roots in Estonia (2014), the company has funded over EUR 200 million in loans, and over 47.000 investors. What will EstateGuru do to mitigate risks for its investors and in a broader sense, what is the outlook for the rest of 2020?
We asked Bert Reila, Marketing Manager of EstateGuru to answer our questions.
How is COVID-19 impacting EstateGuru’s business’ operations?
First of all, we’d like to emphasize that the real estate markets 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 they provide 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 but also other industries. As the situation changes every day, we are monitoring and analysing it daily and are ready to act accordingly. While mild changes in the investors’ investment appetite can be seen, EstateGuru has swiftly adapted to the situation and adjusted its risk assessment and loan criteria accordingly.
What measures is EstateGuru taking in order to secure the interests of its investors during the COVID-19 outbreak?
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 practised working 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 the anticipation of potential affect 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.
Because of the COVID-19, the amount of loans which might delay can rise because borrowers are allowed to pay later or have difficulties paying at all. This is worrying to some investors. Can you share your view on this?
EstateGuru has always taken conservative risks while funding projects – our average LTV (Loan to Value) is only 58% and in the majority of the cases we have taken personal guarantees of the Borrower 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 and rate of late loans will temporarily rise to some extent, BUT we are putting extra effort and extra manpower to the 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 the real estate prices drop by 40%.
We’d also like to stress that:
- We have remained conservative
- Property values have always been based on “as is” values
- We 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
EstateGuru seeked help from the government because of COVID-19. Can you elaborate on why you asked for help and what this help possibly can do for EstateGuru?
Applying for the governmental aid was a responsible step from our side. Reacting swiftly to the new economic situation while cutting costs and applying governmental measures were deemed an adequate and reasonable response in this situation. We aim to act responsibly towards our employees, our borrowers and our investors and we are not cutting staff in these troubling times. It is public knowledge that the support provided by the government was around €20,000. This is a relatively insignificant amount in our monthly revenues, which does not affect us much.
Can you tell us more about the results of EstateGuru in 2019, and when do you expect the audited annual report to be ready?
We are currently working on the annual results together with our auditors Ernst & Young.
What is the outlook for EstateGuru for 2020?
2020 began very successfully for EstateGuru as we doubled both our investor base and loan amounts compared to the first quarter of 2019. We are soon launching our campaign on the Seedrs platform, which is the next step in our journey of becoming the biggest real estate financing platform in Europe by 2025. Right now, we are maintaining our conservative approach through the COVID-19 crisis as we have cut costs on expansion, conferences and travelling.
We keep a close eye on EstateGuru and are curious to see how the current situation will develop. The company has a solid business model and defaults are historically low. We look forward to the next Q2 update to see how EstateGuru is performing. Our review of EstateGuru can be found here and if you want to start investing with EstateGuru you can do so via this link. You will get a 0,5% bonus within the first three months of investing.