State of European Property Crowdfunding in Corona Times

real-estate-crowdfunding

Overview

  • The Covid-19 era exposed how the absence of digitalization in public services impacts property marketplaces: there was a crowdlending amount difference of five times between Spain and Estonia
  • Marketplaces are recovering when it comes to crowdlending in Baltic countries, even with lockdowns

Early Optimism

After the lockdown started in March in the EU, some stakeholders from European property crowdfunding platforms were asked what they make of the situation. To the researchers’ surprise, the majority of them were quite enthusiastic and sure that the corona-restrictions would last just one month or a couple of them. They did not really think about the vastness of the pandemic.

In other things, though, what they thought differed a lot. This is because of Europe being fragmented and that public policies vary considerably. In some countries, the development of properties needed to be halted, while other European Union countries allowed development work outside its borders.

Absence of digital infrastructures

This disease has exposed some European Union members as lagging when it comes to public service digitization. They could not have originated the transactions, as the mortgaging of the property against the loan needed a meeting with the notary in person.

The Baltic States, famous for forward-thinking stances, were fast to respond to the shifting atmosphere. Their crowdpooling platforms have found ways to carry on operating without physically needing to go to the notary.

It wasn’t the same with Spain, though. We saw a five times lending difference in the amount of loans between Spain and Estonia. It’s a big amount if we consider that the population of Spain is 35x bigger.

The Black Swan

Short-term rentals are the most secure kind of crowdfunding properties that can be found on the European marketplace. The opinion is founded on 4 decades of data. It has shown that Spain’s short-term apartment rentals in have been popular even in major recessions, like the 2008 crisis. Short-term rental properties in the middle-price range, which are twenty or forty percent less costly than hotels, saw little consequences on their occupancy.

But, for the past 4 decades, there has been no single happening that could have an effect on the worldwide tourism sector for such a significant time. The assets generated a 0 percent profit while the lockdown was in place. But the good thing was that they didn’t lose money and needed more investment to cover the fixed charges. The buy-to-let investment method consists of rental income and capital growth, which can actually bring up the attractiveness of the chance. It’s still too early to say what the capital appreciation will be in the years to come, but we still do not see a substantial price fall in this segment of assets.

Volumes Recovered

It did not take long for some of the platforms to bounce back when it comes to lending amounts. Some of them saw record highs over summer. Not surprisingly, all of these platforms were Baltic ones. There are a handful of key reasons for this. First, Baltic nations saw a low coronavirus number. Second, the quality of loans and the standards of underwriting have gotten better.

We learned that these platforms had received more funding queries, too, than before the pandemic. Many borrowers have utilized alternative financing only to feel secure and raise pretty small cash volumes.

Quantitative relaxation

The long-term impact on Europe’s real estate marketplace has yet to be seen. However, due to intensive quantitative easing, the outcome of the ventures doesn’t indicate a particular decline in residential assets. Retail investors, however, should not get too happy. The European Investment Bank distributes low-interest credit lines to non-banking lenders likely to dive into the property finance marketplace. This will fuel competition amid platforms and non-banking lenders.

In this event, the borrower wins. Investors, on the other side, will need to get accustomed to falling interest levels, which may not totally show a lesser risk of property ventures. Finally, those who invested in fixed-interest loans or bonds will have their profits reduced because of rising inflation.

Never let a good crisis go to waste

Just as this quote from Winston Churchill says, the disease has brought lots of death and loss to many families, but hey – it also brought huge profits to the brave and the bold who invested in fixed-interest loans.