Banks’ retrenchment from property lending set to benefit P2P investors
Peer-to-peer investors are set to benefit from banks reining in their property debt exposure, Crowdestate has said.
Jitters in the global banking market after the collapse of Sillicon Valley Bank, combined with an uncertain economic environment, have caused banks to reconsider their lending strategies to mitigate risk and appease regulators and customers.
The European P2P property lending platform said this pressure has resulted in reducing their real estate credit exposure and offloading their distressed loan portfolios.
Meanwhile, central banks continue to increase interest rates, having a knock-on effect on property debt returns.
Read more: Crowdestate redesigns its auto-invest feature
“Both trends seem to bring nice benefits for specialist institutions and retail crowdfunding investors,” Crowdestate said.
The platform cited recent research from wealth manager Invesco which assessed return estimates and riskiness of different asset classes.
It found that global equities return 6.9 per cent, while the research team measured the risk at 16.7 per cent.
By comparison, global bonds return four per cent, with risk of 3.7 per cent.
Distressed debt returns 11.4 per cent, with risk of 15.2 per cent.
“Interestingly, distressed debt’s risk level is now almost equal to equities but is expected to return almost twice that of equities,” Crowdestate said.
“While there are lots of institutional investors eyeing the distressed debt market, and we have been talking to several of them as well, there are no crowdfunding platforms (yet) that would provide retail investors with exposure to distressed debt.
“Also, while distressed debt is now statistically a better investment than equities, it might still be too risky for the retail investors. Therefore, we believe that distressed debt is going to remain a realm of institutional investors, and retail investors should focus on the mortgage-secured direct loans.”
Read more: “Innovative” e-citizenship rule may have caused Estonian P2P boom
Crowdestate noted that the global mortgage-backed loan market now provides annual returns of more than 10 per cent, with with risks almost as low as a global bond portfolio.
“In other words, at 4 times less risk than the equity market, mortgage-secured loans are expected to provide 2 times more return than equities,” it said. “All this is good news for crowdfunding investors.”
Crowdestate’s latest annual results showed that it swung into profit and grew its revenues last year, despite a “significant drop” in investments into the platform due to muted market conditions.
The Estonia-headquartered firm reported a profit of €82,500 (£70,504), up from a €68,800 loss in 2021.
Overall revenues grew by 16 per cent year-on-year to €1,082,500, which it attributed to successful debt recoveries from funded projects from previous years.
