Why are SCPIs falling 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, with the average decline being about 10% for affected funds. On the contrary, a small number of SCPIs have slightly increased their prices (less than 1% on average), but this group represents less than 10% of the market. This means that an investor with a diversified SCPI portfolio experiences a limited decline in value of only 2%! Compared to owning real estate outright, that's not too bad. A far cry from the apocalyptic picture painted by some media outlets.
The SCPI funds are still distributing an average of about 4.50% this year, which means that the price decline is offset 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 interest rates are wreaking havoc, steadily reducing the purchasing power of potential buyers. In fact, according to research center Empruntis, interest rates on 20-year loans will reach 5% in early 2024, something we haven't seen in over 15 years. Recall that during the same period, borrowers could get loans at less than 1%. This means that the monthly payment has increased by more than 40% for the same loan amount. If we look at the situation with a 20% down payment, this means that real estate buying power has declined 24% in 18 months. Mechanically, this affects real estate prices, especially in major cities where prices have risen most sharply over the past 10 years. We can cite the example of Lyon, which, according to the Meilleur Ajahn - Le Zschot index, has reduced prices by 8.4% over the year to reach 5036 euros per square meter! This is the largest decrease in France, surpassing Bordeaux (-7.3%) and Paris (-4.5%). Paris has fallen below the symbolic threshold of 10,000 euros per square meter.
The decline is certainly just beginning in residential real estate in major cities. In Lyon, real estate prices fell 1% in the month to Aug.
Recommended real estate
Sale flat in Nice 225 264,00 $
Sale house in Grima 4 682 222,00 $
8 Bedrooms
6 Bathrooms
407 м²
Sale flat in Villefranche-sur-Mer 2 143 423,00 $
3 Bedrooms
103 м²
Sale villa in Antibes 4 464 444,00 $
7 Bedrooms
3 Bathrooms
266 м²
Sale flat in Cannes 1 497 817,00 $
3 Bedrooms
90.48 м²
Sale villa in St. Jean-Cap-Ferrat 50 088 888,00 $
6 Bedrooms
6 Bathrooms
595 м²
1, also a record drop in France. On average, SCPIs are much less susceptible to the downward trend in the real estate market, and some are even increasing their prices! Contrary to the alarming claims increasingly heard in the general media, SCPIs are not all susceptible to declining real estate prices, far from it. It must be recognized that about twenty large funds, mainly targeting office real estate in Paris, have significantly reduced their share price, on average by 10%, with some reductions even up to 17%: Accimmo Pierre, Génépierre, Laffitte Pierre. However, this represents less than 20% of SCPI in the market and 30% of assets. The remaining 80% either did not change their price or even increased their price slightly for a few funds. This is especially true for the "young" SCPIs who are very competitively positioned with recently acquired properties at favorable terms and an active attraction that allows them to purchase properties at a discount compared to forced sales by sellers who are forced to sell because of their indebtedness or because their customers are exiting their products. Some of the funds that have done best include SCPI Cristal Life, launched by Intergestion just over 2 years ago. In fact, its renewal value has increased by more than 6% in the first 6 months of 2023, in contrast to the general trend in the market. In addition, it is already down heavily as of 12/31/2022 at 8.40%. Today, Cristal Life is discounted beyond the +/- 10% regulatory range, which will likely lead to a rapid revaluation of its value per share. An informed investor could very likely avoid a share price decline in 2023 in their SCPI portfolio. For an investor who has built a diversified portfolio of SCPIs in a 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 chose the most successful SCPIs when compiling his investment portfolio (those that distributed more than 5%), the result is likely to be even better: among the 21 SCPIs that reduced their price in 2023, only one had a distribution share above 5% in 2022! For such an experienced investor, the probability that he or she was able to avoid SCPIs that reduced their subscription price is very high. Such a portfolio in 2023 would have a total return of more than 5%... We are a long way from the strongly negative returns one can get from residential real estate in Lyon or Paris, where price declines over the last year are at least the equivalent of 2 years of net rents.
