harvesting and yielding downwards

"In the last twelve months, REITs have generated an average return of 4.4%, to which must be added a revaluation of 0.7% of their wealth, which brings the overall performance to 5.1%" (La Défense, the main business center in Europe). AGE / Photononstop

For one year, the collection of civil real estate investment companies (REITs) has slowed down. It came out at 3.37 billion euros net in the first nine months of the year, according to a statement by the French Association of Real Estate Investment Companies (Aspim), which now publishes quarterly statistics.

After the record set at 6.3 billion euros in 2017, the year 2018 will mark a significant backlash for these products that buy buildings and businesses (more rarely homes) to receive the rents they pay for their quota holders under form of dividends. This allows them to avoid the constraints of an investment in physical properties, hence the term "stone card".

If it's still too early to talk about disenchantment, performance is eroding. In the last twelve months, REITs have produced an average return of 4.4%, to which must be added a revaluation of 0.7% of their activities, which brings the overall performance to 5.1%. In 2017, the total gain for unit holders was 6.22%.

A collection of 18 billion euros

The score, however, remains flattering, especially when compared to that of euro life insurance contracts, which generate only 1.5% in the year. This did not stop life insurers from collecting 18 billion euros in the first nine months of 2018, almost four times more than the stone of paper!

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With the announced increase in interest rates by 2019, the years of high valuation of SCPI activities are now a thing of the past. When interest rates rise, investors are less likely to take risks. Should we worry? "As long as the yield spread between SCPI and risk-free bonds remains high, there will be no problems", assures Julien Vrignaud, founder of SCPI-8. As the remuneration of the 10-year OAT remains currently below 0.8% per annum, the margin is significant.

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"Especially with the return of inflation, which reached 2.2% in October according to INSEE, rents will increase mechanically"adds Jean-Marc Peter, president of Sofidy, which manages Immorente, the largest SCPI on the market (€ 2.9 billion in circulation). In fact, the leases that bind tenants and landowners provide for the indexing of rent, especially as a function of inflation. This feature protects the landlords, even if the habit taken in times of crisis to grant significant benefits in kind to the tenants (rent exemptions, jobs …) to keep them relativizing this protection.

Losses of capital

What are the most fragile products? "Those who invest a lot in France, especially in the Central Business District (CBD) in Paris"says Frédéric Puzin, president of Corum. The performance of buildings acquired in recent years in the most sought after areas of the capital rarely exceeds 3%. If ever the 10-year OAT rate reached this level in the coming years, these REITs would record capital losses. "These are the most exposed to an increase in interest rates"says Mr. Puzin, whose flagship product, Corum Origin, is invested at 90% abroad.

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Investors who have been accustomed during the last decade to benefits favored by the appreciation of SCPI's assets in a context of falling interest rates will have to get used to less generous returns. "This return to normality is in the order of things, M. Vrignaud analyzes. SCPI is not a surplus-value product: the subscriber wants regular income, buys peace. The goal is surrender! "

Jerome Porier

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