Overview of Trends For The First Half of 2023
As inflation gradually subsides, the interest rates offered by crowdfunding platforms have continued to rise this year. However, "Röntgen" investors have been focusing primarily on lower-risk projects and portfolio diversification. Greta Zarembiene, the Head of Investor Relations at "Röntgen", reviews these and other trends from the first half of the year.
In Lithuania, this year has been marked by a significant drop in annual inflation from 18% to 7%, with inflation now lower than the annual returns offered by crowdfunding platforms. Since the beginning of the year, deposit interest rates have also continued to rise, currently surpassing 3% even in major banks. In other debt markets, interest rates saw a significant increase back in the spring of 2022, resulting in more moderate but still positive changes this year. Meanwhile, the overall economic and housing market outlook remains quite uncertain: depending on the month, the number of housing transactions is still 15-30% lower than last year, although there was a somewhat unexpected announcement of positive GDP growth in the second quarter.
How Are Investors Behaving This Year?
The "Röntgen" platform attracts both small investors and high-net-worth individuals as well as professionals managing large amounts of capital. In the first half of the year, investors raised a total of EUR 23 million through our platform, which is a 118% increase compared to the same period last year.
When it comes to small investors, their numbers have noticeably increased recently. They are taking advantage of the higher interest rates to secure greater returns. The average return on the "Röntgen" platform this year is 9.15%, compared to 8.46% last year.
As for large investors, they employ several strategies. We have noticed that individuals who used to invest EUR 100,000 in a single project are now actively diversifying: they don't reduce the total amount but instead invest in two projects, for example, EUR 50,000 each. Those who used to invest EUR 300,000 or more continue to do so, but they mitigate risk by investing in lower-risk real estate projects that are either already halfway developed or completed.
Both large and small investors are seeking lower-risk projects that are either already partially developed, completed, or have clearly demonstrated their commercial potential through pre-sales. Recently, investors have particularly valued projects in which the developer has made significant investments themselves. Thus, a substantial amount of equity in projects is a significant advantage for investors today. All of this indicates that investors are looking for additional factors to reduce risk.
In the past, demand in the real estate market far exceeded supply, leading to the successful sale of even lower-quality housing projects. Today, the housing inventory is growing, buyers are becoming more selective and cautious, and investors are keen to understand the commercial potential of the projects offered. Despite these circumstances, investors are still eager to invest in properties that are not overly leveraged, meaning they have greater value reserves.
We are observing slightly increased caution among investors when it comes to financing projects involving land without building permits and located on the outskirts of cities. These projects are successfully funded, but investors allocate slightly smaller sums from their portfolios than usual. However, land plots in attractive, central city locations are funded almost instantly on the platform, even without building permits.
This year, the average investment on "Röntgen" was EUR 18,229, compared to EUR 18,173 last year, indicating that it has remained virtually unchanged over the year. The average investment has stayed the same primarily because our investor community is very loyal. A significant portion of investors continues to reinvest the funds they receive at the end of the investment term into new projects on the platform. New investors initially test the platform, and once a project is successfully completed and funds are returned, they are inclined to increase their investments. Additionally, active "Röntgen" investors often participate in many of our published projects, investing in almost every or nearly every second opportunity announced.
We do not observe that the projects offering the highest interest rates receive the most attention on our platform. The primary goal of our investor community is to preserve their existing capital and earn moderate value appreciation; high returns are not the main factor in their decision-making. Overall, "Röntgen" stands out in the market with its more conservative interest rates, but correspondingly, we also stand out with 0 delayed loans. It is evident that returns are always associated with risk.
What Are the Current Risks?
We see that delayed loans have increased across the market this year. In many cases, these situations are due to previously overly opportunistic projects that are now heavily leveraged and lack their own cash flows (e.g., from sales) and value reserves to secure additional financing.
In our operations, we focus primarily on avoiding delays, and we are pleased that we have been successful in doing so. However, we also understand that past performance does not automatically guarantee similar results in the future.
Since the beginning of our operations, we have chosen a more conservative business strategy and rigorously select and evaluate projects. We carefully consider factors such as the developer's experience, project location, financial indicators, business plan, market trends, etc. We also assess risks related to project profitability, liquidity, cost increases, payback, cash flow sensitivity, and conduct stress tests.
Since last year, we have paid even more attention to the loan-to-value ratio of the assets. In simple terms, we don't want to over-leverage the assets, so we maintain a solid value reserve in case enforcement becomes necessary. A sufficient value reserve would allow us to successfully realize the asset even with a significant discount in a subdued market. On the other hand, we sincerely believe that enforcement is not our business, and the pledged asset should serve more as a deterrent. Our priority is timely returns on investments.
Recently, we have been even more careful in evaluating and managing the use of borrowed funds. For example, in real estate development projects, in some cases, we disburse funds only according to work completion certificates, and sometimes we transfer them directly to the contractor. This means that the developer has no opportunity to use them for purposes other than intended – thus protecting the investor and ensuring that the value of the asset being invested in is increased. However, if the developer does not certify significant amounts of work, the loan stages announced on the platform may be smaller, so unfortunately, not all willing investors may get a chance to invest.
Our platform's strategy has never been to finance opportunistic or highly risky projects. On the contrary, we have always sought to attract and offer investment opportunities in projects by experienced developers. It is important to understand that such developers have many alternatives for borrowing. Accordingly, they do not borrow at extremely high rates, but investors do not take on higher risks either. However, even in projects by experienced developers, investors may sometimes expect higher returns if the project is in its early development stage or requires a larger amount of funds in a short period.
What to Expect in the Future?
Regarding the entire market and general outlook, we do not anticipate significant changes related to investment returns by the end of the year – neither an increase nor a decrease in interest rates. The overall direction of interest rates in the financial market will be dictated by economic trends and central bank actions.
As the reputation of the crowdfunding market continues to grow and its competitiveness increases compared to traditional credit institutions, investors will undoubtedly have more investment opportunities. The supply of developers and projects seeking financing on platforms is rapidly increasing. Therefore, investors will have more choices, but we strongly encourage them not to be swayed solely by the pursuit of higher returns and to choose projects responsibly.
As for "Röntgen's" strategy and plans, we are forecasting and planning several directions:
- We will continue to focus on lower-risk, more developed, and liquid real estate projects in major Lithuanian cities. Therefore, we do not plan to devote attention to higher-risk projects this year or in the near future.
- We aim to expand the range of investment products offered on the platform. We have previously offered investments in renewable energy and aviation sector projects. We plan to announce more such large-scale projects this fall. Although these projects also involve liquid and valuable assets, due to their specific nature, slightly higher interest rates may be expected.
- To meet the demand for lower-risk investments, we strive to offer as diversified investments as possible. One of the recently successful methods is to form a portfolio of loans from the same developer, allowing us to have real estate assets of different liquidity and completion levels. Thus, by taking advantage of such an investment opportunity, investors can diversify their investment across 4-5 projects simultaneously.
Overview of Trends For The First Half of 2023
As inflation gradually subsides, the interest rates offered by crowdfunding platforms have continued to rise this year. However, "Röntgen" investors have been focusing primarily on lower-risk projects and portfolio diversification. Greta Zarembiene, the Head of Investor Relations at "Röntgen", reviews these and other trends from the first half of the year.
In Lithuania, this year has been marked by a significant drop in annual inflation from 18% to 7%, with inflation now lower than the annual returns offered by crowdfunding platforms. Since the beginning of the year, deposit interest rates have also continued to rise, currently surpassing 3% even in major banks. In other debt markets, interest rates saw a significant increase back in the spring of 2022, resulting in more moderate but still positive changes this year. Meanwhile, the overall economic and housing market outlook remains quite uncertain: depending on the month, the number of housing transactions is still 15-30% lower than last year, although there was a somewhat unexpected announcement of positive GDP growth in the second quarter.
How Are Investors Behaving This Year?
The "Röntgen" platform attracts both small investors and high-net-worth individuals as well as professionals managing large amounts of capital. In the first half of the year, investors raised a total of EUR 23 million through our platform, which is a 118% increase compared to the same period last year.
When it comes to small investors, their numbers have noticeably increased recently. They are taking advantage of the higher interest rates to secure greater returns. The average return on the "Röntgen" platform this year is 9.15%, compared to 8.46% last year.
As for large investors, they employ several strategies. We have noticed that individuals who used to invest EUR 100,000 in a single project are now actively diversifying: they don't reduce the total amount but instead invest in two projects, for example, EUR 50,000 each. Those who used to invest EUR 300,000 or more continue to do so, but they mitigate risk by investing in lower-risk real estate projects that are either already halfway developed or completed.
Both large and small investors are seeking lower-risk projects that are either already partially developed, completed, or have clearly demonstrated their commercial potential through pre-sales. Recently, investors have particularly valued projects in which the developer has made significant investments themselves. Thus, a substantial amount of equity in projects is a significant advantage for investors today. All of this indicates that investors are looking for additional factors to reduce risk.
In the past, demand in the real estate market far exceeded supply, leading to the successful sale of even lower-quality housing projects. Today, the housing inventory is growing, buyers are becoming more selective and cautious, and investors are keen to understand the commercial potential of the projects offered. Despite these circumstances, investors are still eager to invest in properties that are not overly leveraged, meaning they have greater value reserves.
We are observing slightly increased caution among investors when it comes to financing projects involving land without building permits and located on the outskirts of cities. These projects are successfully funded, but investors allocate slightly smaller sums from their portfolios than usual. However, land plots in attractive, central city locations are funded almost instantly on the platform, even without building permits.
This year, the average investment on "Röntgen" was EUR 18,229, compared to EUR 18,173 last year, indicating that it has remained virtually unchanged over the year. The average investment has stayed the same primarily because our investor community is very loyal. A significant portion of investors continues to reinvest the funds they receive at the end of the investment term into new projects on the platform. New investors initially test the platform, and once a project is successfully completed and funds are returned, they are inclined to increase their investments. Additionally, active "Röntgen" investors often participate in many of our published projects, investing in almost every or nearly every second opportunity announced.
We do not observe that the projects offering the highest interest rates receive the most attention on our platform. The primary goal of our investor community is to preserve their existing capital and earn moderate value appreciation; high returns are not the main factor in their decision-making. Overall, "Röntgen" stands out in the market with its more conservative interest rates, but correspondingly, we also stand out with 0 delayed loans. It is evident that returns are always associated with risk.
What Are the Current Risks?
We see that delayed loans have increased across the market this year. In many cases, these situations are due to previously overly opportunistic projects that are now heavily leveraged and lack their own cash flows (e.g., from sales) and value reserves to secure additional financing.
In our operations, we focus primarily on avoiding delays, and we are pleased that we have been successful in doing so. However, we also understand that past performance does not automatically guarantee similar results in the future.
Since the beginning of our operations, we have chosen a more conservative business strategy and rigorously select and evaluate projects. We carefully consider factors such as the developer's experience, project location, financial indicators, business plan, market trends, etc. We also assess risks related to project profitability, liquidity, cost increases, payback, cash flow sensitivity, and conduct stress tests.
Since last year, we have paid even more attention to the loan-to-value ratio of the assets. In simple terms, we don't want to over-leverage the assets, so we maintain a solid value reserve in case enforcement becomes necessary. A sufficient value reserve would allow us to successfully realize the asset even with a significant discount in a subdued market. On the other hand, we sincerely believe that enforcement is not our business, and the pledged asset should serve more as a deterrent. Our priority is timely returns on investments.
Recently, we have been even more careful in evaluating and managing the use of borrowed funds. For example, in real estate development projects, in some cases, we disburse funds only according to work completion certificates, and sometimes we transfer them directly to the contractor. This means that the developer has no opportunity to use them for purposes other than intended – thus protecting the investor and ensuring that the value of the asset being invested in is increased. However, if the developer does not certify significant amounts of work, the loan stages announced on the platform may be smaller, so unfortunately, not all willing investors may get a chance to invest.
Our platform's strategy has never been to finance opportunistic or highly risky projects. On the contrary, we have always sought to attract and offer investment opportunities in projects by experienced developers. It is important to understand that such developers have many alternatives for borrowing. Accordingly, they do not borrow at extremely high rates, but investors do not take on higher risks either. However, even in projects by experienced developers, investors may sometimes expect higher returns if the project is in its early development stage or requires a larger amount of funds in a short period.
What to Expect in the Future?
Regarding the entire market and general outlook, we do not anticipate significant changes related to investment returns by the end of the year – neither an increase nor a decrease in interest rates. The overall direction of interest rates in the financial market will be dictated by economic trends and central bank actions.
As the reputation of the crowdfunding market continues to grow and its competitiveness increases compared to traditional credit institutions, investors will undoubtedly have more investment opportunities. The supply of developers and projects seeking financing on platforms is rapidly increasing. Therefore, investors will have more choices, but we strongly encourage them not to be swayed solely by the pursuit of higher returns and to choose projects responsibly.
As for "Röntgen's" strategy and plans, we are forecasting and planning several directions:
- We will continue to focus on lower-risk, more developed, and liquid real estate projects in major Lithuanian cities. Therefore, we do not plan to devote attention to higher-risk projects this year or in the near future.
- We aim to expand the range of investment products offered on the platform. We have previously offered investments in renewable energy and aviation sector projects. We plan to announce more such large-scale projects this fall. Although these projects also involve liquid and valuable assets, due to their specific nature, slightly higher interest rates may be expected.
- To meet the demand for lower-risk investments, we strive to offer as diversified investments as possible. One of the recently successful methods is to form a portfolio of loans from the same developer, allowing us to have real estate assets of different liquidity and completion levels. Thus, by taking advantage of such an investment opportunity, investors can diversify their investment across 4-5 projects simultaneously.
Related notifications
Ready to invest?
INVEST NOW
UAB Trečia diena, valdanti platformą Röntgen, yra licencijuota sutelktinio finansavimo platforma. Platformos veiklą reglamentuoja ES Sutelktinio finansavimo reglamentas, o veiklos priežiūrą įstatymų numatyta tvarka vykdo Lietuvos bankas.