29.01.2019 | Economy
Demand for rental homes has surged across major cities in Europe, Asia and North America. In many cases, this often triggers a rise in rental property investment, like in France where the share of these investments has climbed 17.5% in two years. What factors are fueling this boom? Discover insights and information about property investment products with BNP Paribas.
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:
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.”
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.
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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