Will COVID-19 be the trigger to burst the bubble?
I'm constantly on the look for innovative ways to diversify my assets, reasons for this vary but it's mostly about risk management and getting exposure to potential high-return investments. As an investor you have to question your decisions constantly and adapt to the market, COVID-19 changed the situation significantly.
First of all it creates fear, with the DAX dropping from its all-time high to around 8000 points in a matter of days we might have seen the beginning of a new financial crisis. Are you sure? Let's look at some potential signs:
In a lot of countries tenants don't have to pay rent anymore until the situation improves...but how does that affect the real estate business and mortgage market? Even more interesting, how does this affect the fintechs like Exporo (offering real estate investements to retail investors) and Mintos (offering exposure to consumer loans, including mortgage)? Why do we look at these fintechs? Well, because they are some amazing (coal mine) canaries. When I decided to leave Mintos at the beginning of 2020 due to a lack of a reasonable return/risk ratio, interest rates were incredibly low (7-9%) for an asset that could go to 0 in the next days. Not to mention that investments in P2P loans are connected to various risks such as platform, loan orignator and beneficiary risk.
After I left multiple loan originators went out of business potentially locking the money of investors in a very weird legal situation with Mintos (incorporated in Latvia), the loan orginator in countries such as Spain, UK, Albania, Russia, Moldova, North Macedonia, Poland, Kazakhstan etc. and then the beneficiary who was probably layed off, is sick or has to live on a cut wage. In short, write it off, you'll never see that money ever again. If risk increases loan originators have to raise the interest rates to attract more money, but how much did it increase?11.04.2020
How many mortgage loans are failing or are about to fail? Nearly 10%. Business loans? More than 10%. These numbers are increasing by the week...11.04.2020
Exporo offers something called "Exporo Bestand" which is about investing in an already existing real estate object that is rented to businesses or normal people. You get paid a monthly share of the returns generated by the lease. This will be the next place where returns are going to crash locking up money. Guess what? There's also no real liquitidity for your shares, it's pretty much like a closed real estate fund but worse.
I think we are about to run into something interesting and I think it will start in the US and the UK first and will turn into a global economic slow down. Recommending Planet Money's recent episode (Episode 989: What If No One Pays Rent?). Oh and maybe it's time to refresh this again: https://www.youtube.com/watch?v=A25EUhZGBws.Update - 09.04.2020
Sorry it's German but Empirica released a study about the real-estate market and COVID-19. They expect an up to 25% hit on valuations and a general trend against micro-apartments (remember Exporo? ;-)).Update - 09.05.2020
In April 10 loan originators collapsed: https://blog.mintos.com/april-30-update-status-of-the-defaulted-lending-companies-and-the-recovery-of-invested-funds/
4 more lending companies were suspended by Mintos: https://blog.mintos.com/akulaku-suspended-on-primary-and-secondary-markets-due-to-late-pending-payments-a-restructured-payments-schedule-already-in-place/
As of today my portfolio delivered an impressive 10% growth since the start of the year, outperforming the DAX by more than 25%. It's important to be fast and adapt quickly if you want to outperform the market, Rothschild is still right today: "Buy when there's blood in the streets, even if the blood is your own.". The best financial opportunities are created in times of fear.