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

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. In lending-based real estate crowdfunding, borrowers are required to pledge their housing properties as collateral to secure the loans. This nascent practice differs from ordinary peer-to-peer lending in that lenders, to make sound investment decisions, need to process additional information other than basic loan attributes. We examine how lender behavior of investing in real-estate-secured loans is shaped by information that is particularly relevant in such an emerging market. We collect and analyze the data from a large lending-based real estate crowdfunding platform, where each loan is secured by either a mortgage (a mortgage-secured or MS loan) or a borrower’s own house (a house-secured or HS loan). Our analysis reveals that lender decisions of how fast to invest and how much to invest are influenced by both on-platform and off-platform information. For on-platform information, we find that lenders as a whole prefer HS loans to MS loans, 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 HS loans as compared with their inexperienced counte