Real estate has compared well with investment alternatives, but to accomplish this you need to know how best to do it.
First, it is necessary to understand that real estate investment competes directly with other assets, such as stocks or bonds. If, on the one hand, bond returns have been very low or negative - it is enough to note that Portuguese two and five-year treasury bonds have negative returns -, on the other hand, stock markets have been buoyant, after the crash caused by the outbreak of the Covid-19 pandemic; before that, according to data from the North American bank JP Morgan, the United States capital market had a 132-month period of continuous growth. If we look at alternatives to real estate investment such as mutual funds (FIM), the data from the Portuguese Association of Investment, Pension and Heritage Funds (APFIPP) for September 24 reveal that the ten FIM with the highest returns showed rates above 35%. However, the truth is that the volume of assets under management of these funds is reduced and the markets benefit from a moment of expansion framed by a generalized financial availability and the intervention of central banks, which keeps interest rates at historically low levels.
Nuno Mello, analyst at brokerage XTB, tells the newspaper Jornal Económico (JE) that "in long-term terms, the trend of [stock] indexes continues to be upward," but warns that even if there are "factors that may limit the market from entering a 'bear market' [a generalized drop in the value of securities, which leads to selling pressure], they will not allow such a strong rise as the one that has occurred so far.
Paulo Silva, Head of Country at Savills Portugal, adds that securities markets are more exposed to volatility, pointing out that last year, with the pandemic, there was an abrupt fall in financial markets, with investors "crystallizing capital gains, leaving and returning to real estate.
In real estate, Paulo Silva, says that "investors have a lot of money to invest and the market continues to grow. He adds that one is "feeling the relief of the confinement restrictions", which leads investors "to come back, aggressively". Alberto Henriques, from Savills' Investment area, reinforces the same idea, sustaining that "real estate exists as a reserve of value and beyond the contractual rents". "As a rule, the cycle becomes almost always positive after a certain moment", he points out.
The question is how to materialize this investment, privately or through real estate investment funds, taking into account the investor's own profile and the characteristics of each type of investment, namely regarding availability and risk.
Advantage for funds
"Real estate investment funds have the advantage of having a diversified portfolio, they invest in many properties at the same time, and if the participant needs liquidity they can make a partial redemption," says the vice president of FII manager Square Asset Management, Pedro Coelho. Square recently reached, for the first time, the top position in terms of assets under management in the domestic market, with about 1,100 million euros. It is preparing to start this year the internationalization with the purchase of income assets abroad.
Pedro Coelho defends the option for professional managers. He says that a private individual always has the problem of risk concentration. "For example, they'll buy an apartment, remodel it and put it up for rent, something that's very much in vogue, but if the tenant doesn't pay the rent it'll take months for the eviction proceedings to go ahead and, most naturally, they'll never want to talk about it again. And, if you do the math on the works, insurance, IMI and more works when the tenant leaves, "it may not be worth it", he adds.
Funds, on the other hand, have the advantage of having diversified portfolios, which reduces the risk of a single asset.
He also mentions corporate investment, which distinguishes itself by having an obligation to achieve better returns with direct investment than what is achieved through a fund. Data from APFIPP relative to last August indicate that in the open income funds, the returns to one year varied between 1.85% and 5.17% for the NB Património fund. The open accumulation funds oscillated between negative values above 3% and positive ones above 5,6%.
Looking at the development of the sector, Paulo Silva considers that "there is a climate of confidence" and a positive movement in the markets, in the different segments. First, there are sectors, more in demand, that still benefit from "an opportunistic perspective, as is the case of hotels.
Next, in offices, after the doubts that were seen due to the investment in telecommuting, the demand has increased.
Finally, housing also has "great indicators and the last quarter was one of the strongest in number of transactions," a trend that "was not affected at all by the pandemic crisis," says Silva.
The issue at the moment, he says, "is the sustainability of price growth. At a certain point, it began to be believed that there would be room for a price reduction, because the product took longer to be transacted, "but what was abnormal was the capacity with which it was absorbed before," he says, adding that even with the slower transactions, "prices were maintained and, in the meantime, we felt a new acceleration in the sale of apartments. It remains to be seen if the effect continues, because if it will end with the gold visas in the two biggest cities", he concludes.
Source: O Jornal Económico
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