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SCPI's fall is smaller than real estate: why?

SCPI's fall is smaller than real estate: why?

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.

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On average, SCPIs are much less exposed to the downward trend in the real estate market and some are even increasing their prices! Contrary to the alarmist tone increasingly heard in the general media, SCPIs are far from being all susceptible to falling real estate prices. Admittedly, some twenty large assets, mostly invested in office real estate in Paris, have declined significantly, by an average of 10% with some declines of up to 17%: Accimmo Pierre, Génépierre, Laffitte Pierre. Nevertheless, this represents less than 20% of SCPI in the market and 30% of total assets. The remaining 80% have either left their price unchanged or''even up slightly for a small number of assets. In particular, the 'young' SCPIs that are very competitively positioned due to their recent acquisition of real estate at favorable terms and the active attractiveness of the funds, allowing them to buy properties at a discount to sellers forced to make forced sales, either because of their debt or because their clients are exiting their products. Among the assets that are doing better at this is SCPI Cristal Life, launched by Intergestion a little over 2 years ago. In fact, its recovery value is up over 6% in the first 6 months of 2023, in contrast to the general trend in the market. In addition, it had already declined strongly by 31/12/2022 by 8.40%. Today''Cristal Life has a discount outside the +/-10% regulatory range, which should prompt the management company to quickly reassess its stake. An experienced investor could very likely avoid the 2023 share price decline in SCPI on their portfolio. For an investor who built a diverse portfolio of SCPIs in the market without much selection, the total decline in value would be about 2%, assuming that 20% of the SCPIs in his portfolio declined in price by an average of 10% and 80% remained unchanged. However, if the investor selected the most successful SCPIs when compiling his investment portfolio (those that paid out more than 5%), the result is probably even better: among the 21 SCPIs that decreased their price in 2023, only one had a payout percentage above 5% in 2022! For such an experienced investor''the likelihood that it could avoid SCPIs that have discounted their subscription price is very high. Such a portfolio would have a total return of more than 5% in 2023...

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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