Rates High, Banks Reluctance: Investing in SCPI - Meilleurtaux Placement

Rates High, Banks Reluctance: Investing in SCPI – Meilleurtaux Placement

It is not easy to buy a property in 2022! The rise in credit rates, along with a very low interest rate, among other things, sharply reduced the possibilities of financing. The question arises: how to invest in real estate today? Good news, there are still accessible and particularly relevant solutions.

Banks no longer lend…or almost

Thousands of French people looking to buy a property, whether it’s a prime residence or a rental investment, are forced to put it off indefinitely. For these families, the situation is appalling: Banks are no longer lending, or at least much less than before. An unlikely scenario after years of low interest rates that have benefited buyers.

At first glance, the reason seems obvious: Interest rates have been rising sharply since March 2022. but in fact, remain at very acceptable levels, historically. So it is close to that observed in 2017. The real problem today is the rate of erosion, meaning the APR (Annual Percentage Rate) that is legally prohibited to exceed for a mortgage grant. It is only 2.60% for a 20 year loan. And many files, which are pre-finable, exceed this limit. Result: rejected file, no credit and therefore no real estate purchase or investment.

The following example, proposed by Meilleurtaux, illustrates this phenomenon.

Added to this is the problem of high bond prices. Equivalent Treasuries (OAT for 10 years) determine the cost of refinancing for the lending banks. Over the past few weeks, a 10-year OAT has exceeded the average mortgage rate over a 20-year period! For banks forced to refinance themselves in the bond market, this mechanically translates into higher mortgage rates, so they don’t lend at a loss. But with a very low erosion rate, it’s basically impossible to solve the equation…hence the low supply of mortgages.

The offer that is rare and stifling regulation… Should we then give up any idea of ​​real estate investing in 2022? Not entirely. There is still an alternative to investing in real estate assets while taking advantage of the strong leverage effect of credit: buying shares of SCPI (Civil Real Estate Investment Corporation)SCPI (Civil Real Estate Investment Company).

Why is SCPI Credit Investment Still Available

At first glance, the idea may seem surprising. If the rate of erosion is so low that it blocks a large part of the files and the problems of refinancing are encouraging a part of the banks to stay away from mortgages, how can investing in SCPI be an exception?

The explanation is simply the regulations. Logically, borrowing for the purchase of conventional real estate is governed by mortgage regulations. SCPI equity financing on credit is based on the rules for consumer credit. The size difference, because the erosion rate of consumer credit is higher. Thus, credit financing of investments in SCPI stocks is still quite possible today.

There is still one downside: investing in paper stone has not escaped the price hike achieved in 2022. An inconvenience to keep in mind. On the other hand, rates, here again, remain at levels similar to those recorded in 2016/2017. On the other hand, it does not call into question the usefulness of the leverage effect of credit investment in sustainable intensification of crop production. Finally, given the trend of interest rates over the past few weeks, the upward movement should continue. In other words, Today’s prices are likely to be more attractive than those of tomorrow or the next.

The effect of leverage is essential in building assets

The principle of leverage is simple: Instead of putting 100, 200 or 500 euros per month on a financial investment, you use that savings ability to pay off a mortgage. Thanks to this, you invest in SCPI shares, up to 50,000 euros and more. And so, from the beginning, this is it 50,000, 100,000 or even 200,000 euros of property assets that suit you. Thus, the income you earn from your investment will be much higher than a simple financial investment.

You will have to finance the paper stone investment by making monthly installments to the lending bank. So why is it interesting? Because the returns on your SCPI investment will cover the cost of the credit (interest) but will also partially repay the monthly payment. So the acquisition is partially financed by the rents paid by Equal Opportunity in Domestic Production!

Example : After 15 years, investing €300 per month in a very dynamic way in a financial envelope and performing 6.5% per annum (15 years IRR between 2003 and 2018), you will have a capital of approximately €99,130 ​​(before taxes).

Now let’s say you borrow €100,000 over 15 years, to invest in SCPI shares that bring in an average of 4.68% per annum (a hypothesis close to the market average). You will receive from the first years 4,680 euros in return.

To pay off the credit, you will have a monthly installment to pay, which is around €690 per month (interest included) in our example. And since you receive an income of about 390 euros per month (the income paid by SCPIs is often distributed quarterly), you only have 300 euros per month left to invest in this project. After 15 years, the credit is paid off, so you are the owner of €100,000 real estate assets, which could be €110,000 or €120,000 if the share price is adjusted upwards over 15 years of holding.

With leverage, investing in SCPI that offers a return close to the market average (4.68% per annum in our hypothesis) will be more profitable than investing in high-performing stocks (6.5% per annum in our hypothesis). . A financial investment must result in a much higher return than a real estate investment in order to match its performance…

The SCPI, the qualities of real estate investing without the hassles

In the end, the most important thing in investing in SCPI on credit is the leverage effect generated by the process…and what you’re investing in. In fact, remember that Buying SCPI shares combines many of the advantages of real estate investing (asset building, regular rental payments) with many of the advantages of a paper stone:

  • No rental management: The management company takes care of everything, from searching for tenants to collecting and paying rents, including business;
  • Significantly reduced risk of rental default : SCPI includes dozens, if not more, tenants, which means that if a tenant defaults, this is only penalized for paying rent to unit owners on the margin;
  • Investing in real estate asset classes that are inaccessible to the general public : offices and shops but also healthcare, logistics and European real estate.
  • In addition to these generalities, it is the right choice of credit-financed SCPI(s) that will allow you to make a successful investment. As such, almost all subsidies in the 2022 SCPI list can be financed on credit. Plus, with Meilleurtaux Placement’s banking partners, you can access financing offers to purchase shares in European SCPIs, with lighter taxes, on credit. Ideal for investors who are already taxed.

Contact a Meilleurtaux Placement consultant

Non-contractual communications for advertising purposes

Like any investment, real estate presents risks:

Decreased investment value. The invested capital is not guaranteed. Its value develops over time, in close relationship with the state of the real estate situation. This position is followed by successive cycles, with ascending and descending phases.

Decreased rental income. In a less favorable economic context, a decrease in the rental income paid to partners is due to a decrease in the financial occupancy rate and/or a decrease in the total amount of rent paid by the tenants. However, this decline could be mitigated by a risk pooling effect thanks to the real estate and rental diversification of the portfolio.

Liquidity. Since real estate is not a listed product, it has less liquidity compared to financial assets. Thus the terms of sale (delay, price) can vary according to the development of the real estate market.

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