When Online Lending Meets Real Estate: Examining Investment Decisions in Lending-Based Real Estate Crowdfunding

Abstract

Lending-based real estate crowdfunding, which involves the use of real estate to secure loans, has emerged as a promising alternative with lower risk than peer-to-peer lending. This study provides insights into understanding how lenders’ investment behavior is shaped by various information in such an emerging market. Using a data set from a large platform over 17 months, the authors find that lenders as a whole prefer loans secured by a borrower’s house to those secured by a mortgage, as reflected in quicker and larger lending transactions. Experienced lenders tend to invest more aggressively, in both time and amount, but exhibit a weaker preference for loans secured by a borrower’s house. A rise in housing prices is associated with quicker lending decisions, and this association is found to be stronger for loans secured by a borrower’s house. When stock market volatility is large, lenders tend to slow down their investments; such a tendency is attenuated for loans secured by a mortgage. The authors suggest that lender heterogeneity in responding to different collateral types should be incorporated into the platform’s design of an automatic transaction or a recommender system. Moreover, platform managers should consider economic conditions at the macro level when deploying their marketing strategy.