Investing in crowdfunding platforms in Western Europe: higher risk, lower returns
A significant number of Lithuanians are currently exploring investment opportunities abroad. However, when compared to Lithuania, the major real estate crowdfunding platforms in Western European countries like Germany, France, and others offer investors weaker investment security and lower annual returns. Managers of crowdfunding platforms who work with investments note that after exploring foreign opportunities and risks, Lithuanians often return to the familiar and more profitable home market.
Recently, there has been a noticeable increase in investor interest in diversifying their investments abroad. As investors look for investment opportunities abroad, they are also turning their attention to crowdfunding platforms, which are popular in Lithuania and throughout Europe. But when they start to look deeper, many investors are surprised to find that the "home" market offers not only some of the most solid returns, but also the strongest investment security.
Over the past year, the Lithuanian real estate crowdfunding market has offered investors projects with annual returns of 8-12%. In comparison, the largest crowdfunding platforms in Germany, such as "Exporo," "Planethome Investment," "Bergfurst," or "Zinsbaustein," currently offer annual returns of 6-11%, while France's "Anaxago" offers 8-12%, and several Dutch platforms offer 6-10%.
At first glance, this seems like a small difference in favor of Lithuanian platforms, but it becomes more apparent when diving into the conditions. The highest-returning projects in Germany or France almost never have primary real estate collateral in favor of investors. In these countries' platforms, investments are typically made as "subordinated loans," which lack any collateral, with investor claims only being satisfied after other creditors' debts are paid.
Secondary real estate collateral, where retail investors do not have priority over larger creditors like funds or banks, is also a common scenario. It is only in the Netherlands that smaller, mostly single-family detached house developments with a primary mortgage are more common. In contrast, larger developments that offer first mortgages to investors are not only rare in Western European countries, but also offer the lowest annual interest rates of around 6%.
This contrasts with the Lithuanian market, where primary real estate collateral remains an unwritten standard for platforms, and where projects with such collateral yield 8-12% annual returns. Thus, when comparing similar investment projects with first liens for the benefit of investors, the returns offered by Lithuanian platforms can be twice as high as in Western Europe, while similar returns to ours can be obtained on foreign markets unless collateral is not provided. Therefore, opportunities for diversification abroad can easily turn into additional risks and uncertainties.
These differences between Lithuanian and Western platforms were also visible before the recent Euribor surge when the usual returns without security measures in Germany and other countries were 4-5%, while in Lithuania, with primary mortgages, they were 8-10%.
In this context, it is also important to mention the divergent trends in the real estate market. Last year, in the final quarter, real estate prices in Germany fell by approximately 7.1%, in France by 3.6%, and in the Netherlands by 1%, while in Lithuania, they grew by 8.3%. The decline in real estate prices in Western European countries also means that in the event of insolvency, recovery becomes more difficult, as it involves selling the devalued real estate pledged to investors while standing at the end of the creditors' line.
Returning home
According to the Bank of Lithuania, the Lithuanian crowdfunding market amounted to EUR 230 million last year and grew by 43% year-on-year. In the previous year, the market also grew at a rate exceeding 40%.
According to Greta Zarembiene, Head of Investor Relations at Röntgen, a Lithuanian real estate crowdfunding platform, Lithuania was one of the first countries in the world to regulate crowdfunding by a separate law. Even the EU Regulation on Crowdfunding, which came into force a few years ago, was to a large extent inspired by the Lithuanian law.
"Therefore, Lithuania can rightly be considered one of the most mature, least scandal-ridden and most sustainable crowdfunding markets. Even now, Lithuanian platforms maintain a non-legally binding but investor-friendly standard of first mortgages in investment projects and still offer better returns than foreign companies. Like most investment firms, we feel the desire of our clients to diversify, but most of them, after looking at opportunities in Western Europe, return back to the familiar market, lower risk and higher returns," says G. Zarembiene.
According to her, one of the reasons why investment returns are higher in Lithuania is the less competitive capital markets in our country, i.e. a much smaller number of lenders and investors and a smaller amount of money for which borrowing businesses compete.
"The Baltic States, and Lithuania in particular, are already catching up with the average economic development of Western Europe, and we are part of the world's most powerful economic and defence organisations, which Western capital market players are becoming increasingly familiar with. Therefore, in the long term, the return on investment in Lithuania will approach the Western European rates, but today we are probably the market offering the best balance of protection mechanisms and returns to investors," says G. Zarembiene.
According to her, proximity and familiarity make investing in "home" markets attractive for residents. Having one's own market is always an advantage for investors, as it provides the best understanding of the legal framework, a better sense of market activity and sentiment, easier access to information on project owners and a better understanding of both risks and opportunities.
"We feel that Lithuanian investors are interested in foreign countries where the grass is supposedly greener. But we also hear that the first acquaintances or attempts on foreign platforms prove the maturity, solidity and profitability of the Lithuanian market. Of course, all investments are associated with certain risks, but in the area of crowdfunding, I think Lithuania can be proud of having created a strong ecosystem where good returns are accompanied by strong collateral," Röntgen's representative says.
Investing in crowdfunding platforms in Western Europe: higher risk, lower returns
A significant number of Lithuanians are currently exploring investment opportunities abroad. However, when compared to Lithuania, the major real estate crowdfunding platforms in Western European countries like Germany, France, and others offer investors weaker investment security and lower annual returns. Managers of crowdfunding platforms who work with investments note that after exploring foreign opportunities and risks, Lithuanians often return to the familiar and more profitable home market.
Recently, there has been a noticeable increase in investor interest in diversifying their investments abroad. As investors look for investment opportunities abroad, they are also turning their attention to crowdfunding platforms, which are popular in Lithuania and throughout Europe. But when they start to look deeper, many investors are surprised to find that the "home" market offers not only some of the most solid returns, but also the strongest investment security.
Over the past year, the Lithuanian real estate crowdfunding market has offered investors projects with annual returns of 8-12%. In comparison, the largest crowdfunding platforms in Germany, such as "Exporo," "Planethome Investment," "Bergfurst," or "Zinsbaustein," currently offer annual returns of 6-11%, while France's "Anaxago" offers 8-12%, and several Dutch platforms offer 6-10%.
At first glance, this seems like a small difference in favor of Lithuanian platforms, but it becomes more apparent when diving into the conditions. The highest-returning projects in Germany or France almost never have primary real estate collateral in favor of investors. In these countries' platforms, investments are typically made as "subordinated loans," which lack any collateral, with investor claims only being satisfied after other creditors' debts are paid.
Secondary real estate collateral, where retail investors do not have priority over larger creditors like funds or banks, is also a common scenario. It is only in the Netherlands that smaller, mostly single-family detached house developments with a primary mortgage are more common. In contrast, larger developments that offer first mortgages to investors are not only rare in Western European countries, but also offer the lowest annual interest rates of around 6%.
This contrasts with the Lithuanian market, where primary real estate collateral remains an unwritten standard for platforms, and where projects with such collateral yield 8-12% annual returns. Thus, when comparing similar investment projects with first liens for the benefit of investors, the returns offered by Lithuanian platforms can be twice as high as in Western Europe, while similar returns to ours can be obtained on foreign markets unless collateral is not provided. Therefore, opportunities for diversification abroad can easily turn into additional risks and uncertainties.
These differences between Lithuanian and Western platforms were also visible before the recent Euribor surge when the usual returns without security measures in Germany and other countries were 4-5%, while in Lithuania, with primary mortgages, they were 8-10%.
In this context, it is also important to mention the divergent trends in the real estate market. Last year, in the final quarter, real estate prices in Germany fell by approximately 7.1%, in France by 3.6%, and in the Netherlands by 1%, while in Lithuania, they grew by 8.3%. The decline in real estate prices in Western European countries also means that in the event of insolvency, recovery becomes more difficult, as it involves selling the devalued real estate pledged to investors while standing at the end of the creditors' line.
Returning home
According to the Bank of Lithuania, the Lithuanian crowdfunding market amounted to EUR 230 million last year and grew by 43% year-on-year. In the previous year, the market also grew at a rate exceeding 40%.
According to Greta Zarembiene, Head of Investor Relations at Röntgen, a Lithuanian real estate crowdfunding platform, Lithuania was one of the first countries in the world to regulate crowdfunding by a separate law. Even the EU Regulation on Crowdfunding, which came into force a few years ago, was to a large extent inspired by the Lithuanian law.
"Therefore, Lithuania can rightly be considered one of the most mature, least scandal-ridden and most sustainable crowdfunding markets. Even now, Lithuanian platforms maintain a non-legally binding but investor-friendly standard of first mortgages in investment projects and still offer better returns than foreign companies. Like most investment firms, we feel the desire of our clients to diversify, but most of them, after looking at opportunities in Western Europe, return back to the familiar market, lower risk and higher returns," says G. Zarembiene.
According to her, one of the reasons why investment returns are higher in Lithuania is the less competitive capital markets in our country, i.e. a much smaller number of lenders and investors and a smaller amount of money for which borrowing businesses compete.
"The Baltic States, and Lithuania in particular, are already catching up with the average economic development of Western Europe, and we are part of the world's most powerful economic and defence organisations, which Western capital market players are becoming increasingly familiar with. Therefore, in the long term, the return on investment in Lithuania will approach the Western European rates, but today we are probably the market offering the best balance of protection mechanisms and returns to investors," says G. Zarembiene.
According to her, proximity and familiarity make investing in "home" markets attractive for residents. Having one's own market is always an advantage for investors, as it provides the best understanding of the legal framework, a better sense of market activity and sentiment, easier access to information on project owners and a better understanding of both risks and opportunities.
"We feel that Lithuanian investors are interested in foreign countries where the grass is supposedly greener. But we also hear that the first acquaintances or attempts on foreign platforms prove the maturity, solidity and profitability of the Lithuanian market. Of course, all investments are associated with certain risks, but in the area of crowdfunding, I think Lithuania can be proud of having created a strong ecosystem where good returns are accompanied by strong collateral," Röntgen's representative says.
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