SCPI's fall is smaller than real estate: why?
Why are SCPIs declining less than real estate? Despite the decline in real estate prices that has been occurring for over a year due to rising interest rates, less than 20% of SCPIs in the market have declined in price, about 10% for their respective assets. Conversely, a small number of SCPIs have slightly increased their subscription price (less than 1% on average), but this group represents less than 10% of the market. This means that an investor building a diversified portfolio of SCPIs faces a limited decline in value of 2%! When you compare this to directly purchased real estate, it's not too bad. A far cry from the apocalyptic picture that some media outlets paint. In fact, current SCPI returns are averaging about 4.50% this year, which''means price declines are absorbed in less than 6 months of dividends!
The decline in real estate prices is accelerating in major French cities. In the housing sector, rising mortgage rates are taking a serious toll, inexorably reducing the purchasing power of potential buyers. In fact, rates on 20-year loans will reach 5% at the beginning of 2024, according to the research department of broker Empruntis, which is the highest level in 15 years. Recall that as recently as 18 months ago, borrowers could borrow at an interest rate of less than 1%. This meant that the monthly payment would increase by more than 40% for a constant loan amount. Looking from a different angle, for a given monthly payment (limited by law to 33%''the borrower's net salary), the amount that can be borrowed has decreased by 30%! Assuming a 20% down payment, this means that the purchasing power of real estate has decreased by 24% in 18 months. Mechanically, this leads to lower real estate prices, especially in major cities, as that is where prices have been rising most rapidly over the past 10 years. We can give the example of Lyon, which according to the index "Meiller-La-Echos" since August 1, prices have fallen by 8.4% per year, reaching 5,036 euros per square meter! This is the strongest decline in France, surpassing the decline in Bordeaux (-7.3%) and Paris (-4.5%) over the period, with Paris falling below the symbolic threshold of €10,000 per square meter. Most likely, the decline in prices on''real estate in major cities is just getting started.
The price drop in Lyon was 1% for the month to August 1, which is also a record drop in France.
We are a long way from significantly negative returns on residential properties in Lyon or Paris, where the price decline over the last year is at least the equivalent of 2 years net rent after costs. Get in touch with an advisor. Find out more at Primaliance.com.
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