In the beginning—surging demand for rental properties
Every densely populated urban area in Europe, Asia and North America is currently facing a housing shortage. This is a growing problem according to Shaun Stevens, Real Estate Strategist at BNP Paribas Asset Management. “The cause is two-fold,” says Stevens. “On the one hand, rampant urbanization is displacing populations towards big cities. On the other hand, a lack of new construction tends to aggravate the supply and demand imbalance. As a result, the real estate market is facing greater pressure and demand for rental homes has risen in these cities.”
This trend seems to be here to stay, according to BNP Paribas Asset Management. The number of households should keep rising, just as populations continue to shift towards urban areas. “We believe the rental property market in Europe represents a promising investment opportunity,” says Stevens. In fact, renters currently account for more than 25% of households in the European Union and up to 50% of households in some countries, such as Germany.
The imbalance in housing supply and demand is a structural problem that will not disappear anytime soon.
“The imbalance in housing supply and demand is a structural problem that will not disappear anytime soon.” says Stevens. This is the perfect context to support growth in the rental property market. Investors have two options for investing in the rental property market:
- Buying a property to rent and assuming all management responsibilities
- Buying shares in a real estate investment company that holds assets in this market. The company invests in several properties and handles all management duties. The assets may include homes, offices, logistics platforms, retail outlets, shopping centers, etc. This is an indirect form of investment, which offers investors more security.
Indirect investment: an increasingly popular offer
Real estate investment companies offer a simple way to invest in rental properties, notably through an SCPI (Société Civile de Placement Immobilier, or Real Estate Investment Company) or an OPCI (Organisme de Placement Collectif Immobilier, or Real Estate Collective Investment Organization). SCPIs continue to win over investors with net investments of nearly €2.4bn in the first half of 2018, according to the latest estimates from Aspim-IEIF, the French association for real estate investment companies.According to Sigrid Duhamel, President of BNP Paribas REIM France, “Associates are primarily seeking products that offer a high performance and return. Combined with a controlled level of risk and a resilient real estate market, SCPIs have all the advantages to maintain their appeal with private investors.”
Several advantages have made these solutions a success with investors.
- They enable investors to accrue wealth with ease, while also receiving periodic revenue: SCPIs offer low entry prices (just a few hundred euros) and are often utilized by investors to complement their income, transfer their assets or optimize their tax situation.
- They are reassuring products for investors: since real estate is known as a stable and durable asset, indirect investments are seen as an excellent way to diversify a portfolio.
- They are tools for diversification: unlike investing in a single asset, investing in an investment company can spread the risk associated with rentals across a broad range of properties, locations and renters in the portfolio. In addition, investors can opt to place their money in a single SCPI, or diversify their investment by becoming an associate of each fund.
- They guarantee several SCPIs suited to different goals and delegate all management duties, including investing in real estate professionals belonging to a management company. In fact, the management company takes care of everything: selecting and acquiring properties, maintenance, finding tenants, collecting rent, selling property, distributing revenue, informing associates, etc.
In France, two types of vehicles provide investors with easy access to real estate portfolios—SCPIs (Société Civile de Placement Immobilier, or Real Estate Investment Company), which only acquire rental properties, and OPCIs (Organisme de Placement Collectif Immobilier, or Real Estate Collective Investment Organization), which dedicate a majority of investments to rental properties, while also diversifying investments in other financial markets. Though only one letter differentiates these vehicles, each one responds to a distinct investment logic: performance for SCPIs and liquidity for OPCIs.
Know the risks before investing
Keep in mind that investing in rental property carries its share of risk, as is the case with any real estate investment. Revenue disbursements are not guaranteed. When selling these assets, the original capital is not guaranteed. Finally, these investments provide reduced liquidity below some purely financial investments, for example.
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