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Viktorija Vanage: Even though the biggest banks 'closed the taps', there is more than sufficient money

2020-09-04

This year for crowdfunding platforms will be more successful than quite and marked by last year's growth. Such tendencies are seen as bank financing is stepping down for RE projects - as it is said 'closed the taps' - and the attractiveness of RE is not dropping. 

As the Lithuanian real estate market has been recovering quicker than expected and demand for properties has been growing, the businesses' desire to borrow money for RE development projects remains high. While banks started evaluating RE business as a higher risk market, businesses have to look for alternative financing solutions. Therefore, more commonly they request financing on crowdfunding platforms, where projects, even during the lockdown, were financed quickly and the platforms could suggest at all times short financing procedures.

During the eight months of this year, four crowdfunding platforms with RE mortgages operating in Lithuania, raised about 23.3 million euros, according to Profitus and Lithuanian Bank data. In August alone, 3.5 million euros were lent for businesses and RE project development throughout these platforms (only in February (5.3 m eur) and June (3.6 m eur) were raised).

On the other hand, investors were also very active. During the lockdown, people having more time and spending more of it online more often found an opportunity to invest on crowdfunding platforms. Nevertheless, one more important aspect was that a certain 'pressure' to invest is high - the wealth of households grows, inflation also grows, and the possibility to deposit money into savings accounts is barely attractive due to low interest.

It allowed the introduction of 172 new RE projects - 25 in August, July and April respectively. It is only one project less compared to the whole of last year. However, the result could have been even better. As I said, there is a lot of money, investors are susceptible to lending and the potential to borrow alternatively is high - in neighbouring countries, Latvia and Estonia, the market for alternative borrowing is 5-6 times bigger than in Lithuania. Therefore, businesses should utilize this opportunity.

According to Lithuanian Bank data, the wealth of Lithuanian households (cash, deposits at savings accounts, stocks, pension schemes, etc.) grew more than twice - from 24.9 milliard to 50.4 milliard euros. During that period inflation was also present, it accounted for 17.1%, according to the report of the Lithuanian Bank. While the interest of the households dropped from 0.54% to 0.17% in the last 5 years - meaning they are much smaller compared to inflation.

Additionally, the loans for businesses are getting cheaper - in Euro Zone, RE pledging or mortgage interest rates, which have a substantial impact on the final RE price, are consequently getting lower. They are getting lower and on the biggest European economics - in Germany, the UK, France, Italy, the Netherlands, etc.

I notice, that recently crowdfunding platforms operating in Lithuania have been lowering the interest. It is a good sign because it increases competition in the whole market of borrowing. Investors are determined to lend for lower interest but with lower risk. Compared the first year of Profitus with the second year, the interest got lower from 10.3% to 9%, and the ultimately financed projects were with the record low interest - e.g. 6% or 7.5%.

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