Lithuanians are attracted by the innovation of investing in real estate, but experts urge to be vigilant: don’t forget the high risk

The business borrows from small investors.

Residents wishing to obtain a home loan can apply to commercial banks, credit cooperatives and other legal entities included in the Public List of Creditors maintained by the Bank of Lithuania. Companies that also want to obtain loans (in some cases working capital) have the opportunity to apply for financing from dedicated crowdfunding funds. There are many of them in Lithuania.

According to Profitus, one of the crowdfunding platforms, the popularity of this method of obtaining financing increased during the quarantine, when small and medium-sized companies seeking to participate in smaller projects, generally housing, almost lost the opportunity to get into debt in the market. banking. How do these platform funds work? Anyone can invest multiple amounts of money on the platform, and companies lend it to implement projects.

According to Profitus, the number of users of the platform grew during the quarantine, 76 percent. Investors have invested more than once this year, more than half, more than 4 times. The investment in the platform must reach 100 euros, and the upper limit is chosen by everyone individually.

Viktorija Vanagė, the founder and head of the platform, says that this year’s average investment barely exceeded 1,000 euros, last year the average investment amount was higher.

However, the platform received more commercial requests for funding as developers needed funding: 19 projects were funded, more than in any previous semester. The amount mobilized is almost 4 million. EUR.

“We have a specific example: a developer who asked us during the quarantine without receiving a loan from the bank. Approximately 700,000 euros have been mobilized for his project, Urbo Namai, in a short period of time and the project is already under construction. The project It was planned even before the quarantine, when it started, the developers did not postpone their plans without receiving financing from the bank, ”says V. Vanagė.

According to the developer himself, the possibility of borrowing money from such platforms reduces the probability of overheating in the construction sector, companies can start businesses with experience in the market, less competition. But also, borrowing money from these funds increases the cost of loans, must increase the margins of the project or seek more profitable projects.

Calls for attention to risks

As already mentioned, people themselves invest money in such platforms, waiting for a return. What it can be depends on the specific project: the loan-value ratio (LTV), the developer’s experience and the business plan. Investors generally vary in annual interest rates from 6 to 14 percent. In other words, if a person has invested 1,000 euros, the annual interest is 10%, during the project he will earn 100 euros. Interest is generally paid periodically in installments and depends on the terms of the project. T. and. Possible monthly or quarterly payments. Meanwhile, the investment itself returns at the end of the term (as it is, depending on the fund in which it is invested, it can be 3, 12, 36 or more months).

However, the potential risks of investing in such platforms should not be overlooked. According to Profitus, each project has a small chance of failure.

“We evaluate all funding requests without exception and tolerate low risk to ensure maximum investor protection. Projects receive a reliability rating and assets are committed to investors, who also receive an indicator that cannot be lower than the collateral barrier provided. It is important to note that the platform provides loans of up to 70%. collateral value (LTV – the ratio of loan value to collateral), “explain platform representatives .

Despite the “safeguards” introduced by the founders of such platforms, economist Indrė Genytė-Pikčienė emphasizes that this market is still very young and has not had to face major crises. According to the expert, in most cases, all deficiencies and all risks are revealed during various crises.

“When there is a lack of liquidity in various parts of the economy and payments are stagnant, then the ability of companies and the population to meet their obligations becomes clear, and this segment is the most sensitive to such risks. It is clients of these platforms who request loans may no longer be able to meet their obligations, so it is natural that those who have invested in these platforms lose their profits and gains, “emphasizes the economist.

According to the interlocutor, now that the economy faces certain challenges, it is a good time to monitor the performance of these platforms and assess their ability to face the challenges that may arise from interruptions in payments or settlements.

“Most of these platforms are used by people who cannot obtain loans from credit institutions, who really carefully evaluate the creditworthiness of the clients and make high demands. “Platforms, of course, attract riskier clients, therefore higher interest rates, and like in all investment areas: the more risk you take, the more return you can expect and the correspondingly greater chance of losing.” the economist warns.

I. Genytė-Pikčienė emphasizes that residents should not give in to the “fad” of investing in real estate crowdfunding funds without first paying close attention to the potential risks and, of course, the returns.