INVESTING IN EUROPEAN REAL ESTATE

29 January 2018

European real estate is an interesting alternative for real estate investments, thanks in particular to European REITs, which make it easy to invest in European real estate. Germany, UK and Portugal, find out the investment prospects of these real estate markets and the segments in which to invest as well as the advantages to invest via international SCPIs.

COUNTRIES IN WHICH TO INVEST IN EUROPE

GERMANY: A REAL ESTATE MARKET

"Many requests and few offers! More than 10 years after France, Spain, Portugal or England, the German real estate market, hitherto protected, lives its real estate boom, and is thus under pressure. Beware of the real estate bubble and its chain reactions, as have other European countries, "says Jean-Philippe Petot of the European network in independent real estate OptimHome.

With the slump in the real estate market in several European countries, the German real estate market, which had stagnated for many years, is increasingly attractive to international investors. According to OptimHome, the market has gained 3% per year in the last three years and 9% per year in the big cities. Real estate investments in Germany seem to be an attractive investment in 2017, especially in large cities such as Munich, Frankfurt, Hamburg, Berlin, Stuttgart, Amsterdam or Karlsruhe. These cities "combine strong investment markets with good long-term prospects, driven by a strong demographics, a technologically advanced economy and growing urban areas," says Barnes in the pages of the newspaper Les Echos.

But we can also closely monitor high-end geographical or tourist areas such as Starnberg and Baden-Baden.

UNITED KINGDOM: SLOWDOWN OF PRICE INCREASE?

Since the second quarter of 2011, the price of real estate has increased by 26.9% across the Channel. In one quarter, the price index rose in the United Kingdom (+ 3.9%) as well as over one year (+ 5.6%). In London, the increase is even more rapid than in other regions of the country: the housing price index jumped 10.6% between October 2014 and October 2015. The risk of housing bubble is high, according to UBS.

The main reasons identified are the rise in prices, the rise in interest rates, the drop in foreign buyers' demands and therefore the longer lead times and, very recently, Brexit has already been added to this long list. !

But London remains the city acclaimed without reserve by the very wealthy clientele and the luxury real estate market in central London seems to have a bright future ahead of him.

PORTUGAL: THE SHIT OF FOREIGN INVESTORS

The rise in real estate prices in Portugal was 2.2% on average, and nearly 10% in old Lisbon in 2015, the first year of growth in five years. The profitability of rental property is becoming more and more interesting in Lisbon. The cost of living is relatively low and its housing market is slowly recovering since the global financial crisis.

Chinese, Americans, Russians, Colombians, Brazilians, Spaniards, French and Scandinavians were the big investors in Portugal, especially the Chinese who acquired residential spaces, office buildings and real estate to rehabilitate. Competitive prices, good capital gains prospects and improving economic conditions in Portugal, which is starting to emerge from the financial crisis of the past seven years, are the main factors that will continue to attract investors in this market in 2017 .

The first half of 2016 has confirmed the French infatuation with Portugal, which is today the first foreign investors in Portuguese stone declassifying for the first time, the Chinese and the British. Indeed, 25% of goods purchased by non-Portuguese were acquired by French in the first half of 2016.

In addition to the living environment, Portugal also has one of the most attractive environments in terms of taxation in the world and has one of the most attractive immigration programs of investors (1,441 Golden Visa have been awarded 1,159 for Chinese and 46 for Russians). These advantages have a strong impact on foreign buyers allowing Portugal to be in our ranking of countries to retire and countries where to buy a second home. Taxation is very beneficial for foreign pensioners in Portugal - the French pensioner is totally exempt from his income tax if he spends at least 183 days a year.

INVESTING IN A EUROPEAN SCPI

Realize a real estate investment abroad is not easy. Thus, to allow the French investor to capitalize on the dynamism of the European real estate market without having to select a single asset and with a minimum of accessible underwriting, management companies have launched Civil Real Estate Investment Companies (SCPI) invested in Germany or invested throughout Europe. So, if you have some reluctance to physically invest in real estate abroad but want to diversify and benefit from the growth of our European neighbors, international SCPIs may be ideal.

EUROPEAN SCPIs TO DIVERSIFY YOUR REAL ESTATE HERITAGE

Investing in a European REIT is particularly advantageous in terms of risk diversification as it allows investing in offices or businesses located throughout Western Europe without having to worry about selection and management. By allowing you to pool your investments between several countries, you will diversify your heritage assets.

Genuine new-generation "stone-paper" vehicles, European REITs are certainly a means for the private investor to diversify his wealth and to seek performance abroad when French yields tend to wither but it is This is also a real opportunity for developers who thus manage to invest the capital raised with the public much more easily.

INTERNATIONAL SCPI TO GENERATE INTERESTING RETURNS

These international SCPIs are also very advantageous in terms of performance. They will be referred to as SCPI of return because the assets held are essentially offices and commercial premises rented by companies or institutions, public or private. These leased surfaces can be significant and generate rents also significant, which implies an attractive return, in the current economic context, for the unitholder. In fact, if the best net rental management yields posted by French REITs are around 5% per annum, and taxed in the property tax system, European REITs can post yields of more than 6% net per year without counting the possibility of benefiting from foreign taxation, which is often more advantageous.

However, these rates of return vary considerably according to the strategies displayed by managers of European REITs.

European SCPIs based on prudence with premium or core assets are very numerous because indeed most managers of European REITs are subsidiaries of major banks or management companies that favor real estate complexes with a hyper-secure yield and therefore property located in a very good location, with senior tenants, firm leases of long duration (between 9 and 15 years) and no significant work to be expected. These premium or core European REITs have yield rates of around 4.50% per annum, equivalent to the diversified classic Paris SCPIs.

There are also European SCPIs with a more opportunistic approach, added value added. We think in particular Corum Asset Management which favors riskier investments but with greater value opportunities. For example, this investment strategy has enabled SCPI Corum Convictions to maintain a rate of return of more than 6% since its creation.

Many management companies now offer these European REITs and notably La Française AM with SCPI LFP Europimmo and SCPI LFP Europimmo Market, Paref Gestion with Novapierre Germany and of course Corum AM with Corum Convictions.

REAL ESTATE SECTORS IN WHICH TO INVEST IN EUROPE

As we have seen with the examples of management above, beyond the choice of the country or countries in which to invest, the sector is also of crucial importance and must be adapted according to your investment strategy and your risk aversion.

Café du Patrimoine presents you with Savills, international real estate consultancy, 10 key sectors to invest in Europe according to your profile: core investors (who are looking for a safe investment with a high return) or value-added investors (who are looking for a riskier investment but with great value opportunities). Combining core and value-added investments, of course, seems to be ideal. Then you can determine the share of riskier and higher-paying assets and the share of assets that is safer and provides less return that suits you best. Do not forget that an investment in a European SCPI entails specific risks: migrant crisis, impact on the flow of people between borders, separatist tendencies, possible pressure from Russia on certain territories, political elections marked by the rise of parts of extremes, etc.

THE 5 SECTORS TO BE PRIVILEGED FOR CORE INVESTORS

Core investors favor real estate complexes located in a very good location, with tenants of first rank, long-term firm leases (between 9 and 15 years) and no significant work to be expected. They are looking for a super secure return and generally invest in these assets in heritage (long term) via investment funds.

- Shopping centers in big cities: In cities that are experiencing strong growth in population and draining major tourist flows (Berlin, London, Madrid and Milan for example), the main shopping centers will retain their appeal. .

- "Green" offices in "smart cities": flexible and sustainable buildings in dynamic or "smart" cities (such as Berlin, Dublin, Stockholm, Barcelona, ​​Madrid or Warsaw) will be increasingly attractive, and should therefore record a steady increase in their rents.

- Pan-European e-commerce logistics buildings: e-commerce, which recorded a 22% increase in Europe in 2015, as well as future innovations in the trade sector should lead to an increase in the demand for warehouses and distribution networks. Large urban areas such as London, Madrid and Paris should benefit from the growth of this new market.

- Properties located in the best shopping streets of tourist cities: The major European cities are particularly frequented by foreign visitors. Milan, Paris, Madrid, Amsterdam and London remain major tourist hubs because of their cultural attractions that attract high-income tourists. They will therefore remain popular destinations for international brands.

- Student housing to cope with the increase in the number of international students: In addition to the fact that student housing in the United Kingdom, Germany, France, the Netherlands and Spain have become in recent years an asset class in its own right, the housing shortage and the many future constructions offer new investment opportunities.

THE 5 SECTORS TO BE PRIVILEGED FOR ADD VALUE INVESTORS

Investors add value are looking for great opportunities for value creation. They therefore usually invest in properties with a high vacancy rate and technical obsolescence requiring significant work.

  • - Healthcare institutions: in Europe, population aging is leading to a growing need for institutions for the elderly, particularly in markets with very well-off populations, as is the case in France and Germany.

    - Offices in Central and Eastern Europe: Western companies seek to bring their back office closer to their location, while benefiting from lower salary and property costs than in the country where their head office is located. Poland, Hungary, Romania and Slovakia should therefore be successful and represent a real potential for investors.

    - Small areas in the cities of 1st and 2nd ranks: Demand for small areas of housing should increase further in London, Paris or Madrid where young people can not buy large areas due to prices too high. In Berlin, Dublin, Barcelona, ​​Amsterdam and Stockholm, it is the insufficient supply in the face of growing demand for affordable housing that should drive the price of small stores.

    - High-yield periphery shopping centers: High risk premiums, including on performing assets, are currently being applied due to the global financial crisis and the local economic problems that have impacted the economy. lower consumer spending in the markets of Greece, Portugal and Romania.

    - Public goods in markets where governments establish public-private partnerships: in indebted countries undertaking privatizations such as Italy and Greece, where the public sector is having difficulty maintaining quality services, the need for increasing liquidity translates into interesting public arbitrations.


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