The property investment and financing platform — which was founded in Estonia in 2013 — aims to enter new jurisdictions in Europe after officially opening its first UK office in Manchester, in March.
At the same time, Estateguru is increasing loan originations in its existing markets.
The company’s goal is to become a “truly international platform” and increase overall lending by 100% each year to achieve a funding volume of €5bn (approx. £4.3bn) annually by 2025.
In an interview with Development Finance Today, Judith Tan, head of capital markets at Estateguru (pictured above), explained how the company’s UK proposition has been received so far and how much market share it plans to take.
Why did Estateguru enter the UK market?
Expanding into the UK is one of the important milestones of the long-term strategy of Estateguru. We want to expand across all the main markets in Europe by 2025, in order to be a truly international platform and meet our ambition of funding €5bn annually by 2025.
The UK has a transparent legal and regulatory regime in which to grow the loan origination and retail platform for the group, which was another driving factor behind our decision to enter the territory.
How has the UK proposition been received in its first three months?
We’ve made fantastic progress so far in our Manchester office, establishing a strong starting pipeline as we progress towards approval from the FCA.
The feedback from developers has been encouraging as there’s still a large demand for lenders that will support borrowers, not only with fast and flexible finance, but also developing long-term relationships and becoming true partners in the success of their businesses. We also see strong interest from the UK-based institutional investors, and there are several due diligence processes ongoing for providing £100m-200m credit lines for UK projects.
What UK lending targets do you have over the next 12 months?
The team hopes to originate circa £50m-60m during the first rolling year of business.
From your experience, what are the differences between the UK and other European finance markets?
The UK has a mature capital market for funding, as well as a large borrowing base and well-established banking and fintech platforms. In contrast, European finance markets have less developed capital markets and are dominated by the banks.
Estateguru has the advantage of access to, and the ability to support, the thousands of brokers who operate in the UK’s real estate market. Through collaborating with brokers, Estateguru can scale more efficiently than in markets that are predominantly driven by direct relationships with borrowers.
In the UK, there is also a substantial funding gap, so there is ample opportunity to bridge this with our platform. Furthermore, the UK has an acute housing shortage which provides an opportunity for funding underserved SME borrowers looking to increase housing stock across the nation. While this space is currently served by challenger banks and rising fintech platforms, Estateguru is looking to disrupt the market.
Finally, the UK is familiar with alternative finance solutions, such as bridging finance, which supports the business and our broker partners by reducing the need to educate the market on alternative finance options.
What types of property investments does Estateguru fund?
We fund a diverse range — typically land with planning, residential development, and bridging for SME borrowers and developers. There are opportunities to fund smaller mixed-use schemes with some commercial and residential projects, too. Our funding sweet spot is between £500,000 and £5m, but we will be able to finance bigger deals of up to £10m.
How much due diligence is carried out before each loan is presented to investors?
Each loan application is rigorously assessed by our local credit risk team before being approved for investment. Due diligence is carried out on the property valuation, project viability, borrower track record and their repayment strategy, in accordance with our criteria. We use sophisticated data and technology systems, as well as legal and industry expertise, to ensure this process is as robust, efficient, and effective as it can be for both investors and borrowers.
In addition to the credit risk aspects, a thorough KYC/AML process is carried out by Estateguru, and our low default rate is testament to our thorough processes.
Are funding opportunities available for everyone, or is there a vetting process to select investors?
Estateguru’s platform, once in operation in the UK, will provide investors access to the origination pipeline, both in the UK and across Europe. In addition to the usual KYC/AML onboarding process, the only vetting is the self-certified appropriateness test, as Estateguru can only accept sophisticated UK investors. We are also reviewing additional lines of credit from institutional investors to fund the pipeline due to the forthcoming increased origination volumes.
The European Investment Fund (EIF) recently backed your new credit fund to help support European SMEs mitigate the economic impact post-pandemic. How much do you aim to lend?
The fund size is contemplated to initially be €60m (approx. £51.5m), then increasing to €170m (approx. £145.9m). This amount will be used to support Estateguru’s origination strategy to fund SME borrowers in property loans that will be used for development, bridging, and business loans in continental Europe.
What sets Estateguru apart from other P2P lending platforms?
Estateguru is exciting due to its pan-European presence, as we provide financing to SME borrowers for eight jurisdictions versus other platforms, which may only cover one. It also has a large and diverse base of registered investors (in excess of 130,000 and growing) from 109 countries, with millions of Euros available to lend and a varied risk appetite.
As a result, Estateguru can support its SME borrowers by providing the financing they need to realise their plans quickly, on their own terms. To date, Estateguru has generated a significant volume of loans (circa €550m, approx. £472.1m)) with a favourable track record on returning capital back to its investors. It is also growing the originated loans through the teams based in each jurisdiction, and this is just the start for us!
What are Estateguru’s ultimate goals for the European market?
Put simply, we aim to be a number-one player in the alternative property lending space and to achieve significant scale and volume within the next few years. Estateguru continues to grow by both expanding into new jurisdictions — such as the Netherlands, Italy, France and Portugal, in the short term — while increasing loan originations in our existing markets.
Excitingly, we are actively shifting the funding model towards institutional funding in the coming years, and we therefore welcome institutional investors to get in touch.