Saturday, November 27

Earn up to 30% with your home

In turn, the pace at which operations are carried out has also been progressively recovering and the latest available data, corresponding to August, show a rise of 57.9%, to 49,884 transactions, the highest volume in this month since 2007, according to the National Institute of Statistics. The figure represents the sixth consecutive rebound in a year in which it has once again become clear that when Spaniards have money in their pockets, they tend to opt for real estate.

“Without a doubt, we find housing as a safe haven value, given the inflationary trends in the economy, the lack of sufficient remuneration for bank deposits and fixed income,” says Samuel Population, National Residential and Land Director of CBRE Spain. Currently, saving faces the bites of inflation, which climbed to 4% in September, and interest rates, which at record lows reduce returns to their lowest level (few deposits offer returns of one percentage point). If to this is added “that the bank offers mortgages in very advantageous conditions, both at a fixed and variable rate,” investing in housing is presented as “an excellent option,” adds Population.

Reviewing the Spanish market, the sector recorded an investment volume of 7,842 million euros in the first nine months of 2021, 16% more than a year earlier, according to provisional figures from CBRE. And the forecasts of this real estate consultancy suggest that the year will close with an investment of 11,000 million.

A convenient option?

So, is it a good time for an individual with a certain financial muscle to bet on the home? “Definitely, yes,” says Edoardo Corda, CEO of Briwell Group, who raises it both for those profiles with “money stuck in a checking account that is generating 0% interest”, and for those who have to resort to a mortgage to supplement the savings cushion. “Even with this condition, the option of investing in brick is still very convenient,” he points out, since no matter how low the profitability is, Corda believes that the individual could earn more than 4%.

Following the most common guide on these potential earnings, which is the gross rental yield (average yield that would be obtained from buying a rental home) calculated by both the Bank of Spain and the different real estate portals, the average profit is at 6%. And this is the main reason for buying a home for three out of four investors, according to Fotocasa, and 84.7% believe that the home gives a return that no other financial product now offers.

Sell ​​or rent?

This is where the question arises as to whether to rent or sell … Which is the right choice? For Sofía Cayuela, account manager of Financial Entities at the Valuation Institute, there is no magic formula. “It all depends on the objectives that investors have, the terms they have to recover their investment, the type and condition of the home, and the area,” he says.

For its part, Fotocasa does tip the balance towards rent. In fact, María Matos, Director of Studies and spokesperson for the real estate search platform, states that profitability continues to be “the key driver” when it comes to putting a home for rent, in the last two years “the wait for the value to increase ‘and sell. If the apartment is in good condition and in an area of ​​high demand, “it can be rented at a competitive market price,” he considers. By communities, the Valencian Community and Navarra stand out, where profitability exceeds 7%.

Nor does it seem negligible the average yield that the real estate company Solvia assigns to the other option, that of buying to sell: they frame it in an optimistic range of 15% to 20% on average if reform is carried out, and may reach 30% if it is about very old houses. “Reforming flats in poor condition with the intention of reselling them attracts more and more,” they point out.

“Investing in real estate requires prior knowledge of the market, since a bad purchase could weigh down the main objective of the investment: to obtain profitability”, indicates Gonzalo Castro, director of retail sales at Solvia. To calculate the possible profitability and make the decision, the investor must take into account variables such as the expected annual income or maintenance expenses (IBI, spills, etc.) in the case of rent and, in the case of sale, They will consider the possible price at which it will be put on the market, transaction costs, taxes or the reform. Although the most relevant factor will always be the cost of the property, since the potential benefit will depend essentially on whether it is acquired at a good price or not. In Spain, the average amount for a typical home of 90 square meters amounts to 223,380 euros, according to the Appraisal Society and, although the European Central Bank has just warned of the risk of overheating prices, experts predict more increases, at least for next year.

Where to look

With a view to looking for other trends in large investment firms that individuals can imitate, professionals who manage very high private fortunes and at a very high level “focus on two key concepts: niche and differentiation”, defines Edoardo Corda. Environmental factors or a high segmentation of the target can constitute an important competitive advantage when guiding a financial bet.

In turn, from the Institute of Valuations they comment that there is a high interest in shared housing formats (coliving, student residences …), as well as build to rent or luxury housing in Madrid, Barcelona and the coastal areas, the latter «especially among foreign investors», points out Sofía Cayuela.

Looking ahead, 71% of large European investors believe that the pandemic has increased demand in the periphery, while 37% expect it to increase in the city center. Another 32% believe that rural areas will also be more popular, according to the third edition of the JLL Living survey, prepared together with Abrdn.

Other alternatives

It is clear that the pandemic is reshaping the sector and that there is still some uncertainty, both from the point of view of changes in consumption habits and from the economic point of view. There are also short-term concerns about rent regulation or specific construction requirements based on sustainability criteria.

The small investor is going to run into the barrier of entry of money, understood as the amount necessary to acquire a home. In addition, there are other problems associated with the difficulty of accessing capital in the event that liquidity is needed or the management of these assets, especially when they are put up for rent, and which can “be too much effort, especially at a certain age”, says the economist Luis Gasca, professor at CEF-Barcelona and financial analyst.

That is why, if what is intended is to enter the brick to put the money to work, it may be convenient to assess alternative investment routes beyond the direct purchase of a house or apartment. For example, through real estate crowdfunding platforms such as Housers, Urbanitae, iCrowdHouse or Fellow Funders. The individual participates with a contribution that can start at 50 euros, it covers a part of the project and, in return -in the best of scenarios-, receives a return that on average can be around 8% or 9% per year. The counterpart is that the investment cannot be withdrawn early and that, “if the project in which you have put money fails, you lose it,” Gasca recalls, so he recommends entering several projects or several platforms, for better diversification .

Thinking of increasing this diversification and minimizing risk, the individual can also opt for Socimis and exchange-traded funds (ETFs), through which they will be able to enter into various national and international projects (in the case of ETFs).

Investing in Socimis shares allows obtaining returns of around 4% or 5% through dividends, “plus a capital gain of around 5% per year due to the growth of the price itself,” explains Gasca. Of the 79 real estate companies listed at the end of April, with a market value of 22,030 million euros and an asset portfolio of 51,277 million -BME data-, this expert puts the four that are listed on the continuous market on the radar: Merlin Properties, Colonial, Lar and Arima, with annual increases that range between 20% and 5%.

As for ETFs, one of the main advantages stands out as the “high diversification” they offer, and that they allow you to see where you invest to adjust the exposure to the maximum. With Europe and profitability on target, the iShares MSCI Target UK Real Estate offers annual returns of 22%, according to Morningstar data. The podium is completed, with annual revaluations of more than 15%, the BNP Paribas Easy FTSE EPRA / NAREIT Developed Europe and the Lyxor PEA Immobilier Europe.

And with a global target, the Morningstar ranking is led by the listed funds Dow Jones Global Real Estate, iShares Developed Markets Property Yield and Amundi Index FTSE EPRA NAREIT Global, all three with annual increases close to 30%.

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