Profitable Investments with «Concrete Gold»
When stock markets fluctuate and interest rates are low, many investors look for alternatives. Real estate has proven to be one of the most interesting investment categories in recent years. Even small investors now have access to a wide range of real estate funds and real estate stocks - investments are possible with small amounts. Even though vacancies in rental properties are rising, practically all of these investment vehicles continue to generate solid returns. For funds that invest in Swiss residential properties, which are particularly popular at the moment, the average dividend yield per year is 2.2 percent.
High prices for transactions
An important driver for this segment continues to be the high prices and high valuations of Swiss properties. According to various market sources, for example, the prices paid on the market for apartment buildings have risen somewhat again this year. Things are currently much quieter for transactions involving office buildings or in the retail sector (shopping centers, retail spaces). How good the figures actually are is shown by an overview of the total performance over the last five years: at the top of the table are the UBS Foncipars and Solvalor 61 funds. Here the strategy of focusing on residential properties has paid off. Among funds that invest more in commercial real estate, Schroder ImmoPLUS proved to be particularly successful. In terms of stocks, Allreal has overtaken major players such as Swiss Prime Site and PSP Swiss Property (see table). The fact that many investors view the prospects for commercial and office properties less favorably than before in light of recession and coronavirus is likely to be significant here.
Time horizon: Three or five years
Nicolas Di Maggio from Swiss Finance & Property says: «Basically, Swiss real estate funds are suitable for all investors who have an investment horizon of at least three years.» It is simply important to be aware of certain fluctuations and to manage them. After just three or four years, the risk that the investment will produce a negative result on balance significantly decreases. Calculated over a time horizon of several years, volatility drops sharply, Di Maggio emphasizes. Real estate stocks are subject to stronger fluctuations - for this segment, the investment expert recommends a time horizon of at least five years. As with almost all other investments, the motto is: «Never put all your eggs in one basket.» Experience shows that it is anything but easy to identify the best securities from a selection of around fifty to sixty listed real estate funds and stocks. It is advisable to obtain certain data yourself and acquire a certain level of expertise. Of course, it is also possible to have the Swiss real estate segment covered by a professional through passive index products or as part of asset management. An essential criterion is always the question of whether real estate funds and real estate stocks are currently fairly valued. Because the outlook for many other asset classes is currently bleak, demand for real estate is inevitably increasing. This in turn leads to relatively high valuations, and some securities are also considered overvalued on the stock exchange. An important indicator here is the current stock price in relation to the objectively and independently estimated values of the property portfolio (premium). If this discrepancy exceeds an order of magnitude of 30 percent, caution is advised, experts say.
Secure source of income
However, what is considered extremely secure are the distributions of real estate funds. Many of the Swiss funds have been on the market for many years or even decades and have carefully built up their portfolios. Most players are also optimistic for the medium term: Allreal writes, for example, that the company continues to have full order books and that the vacancy rate in its own real estate portfolio is below 2 percent. «The dividend for 2021 is already secured today,» it continues. Gabriela Theus, Managing Director of Immofonds, also expects a stable earnings situation for 2021 overall: «Since most real estate funds are constantly growing through purchases and new construction, revenues are increasing overall.» The fund primarily invests in residential properties, which are considered particularly solid for the near future. The fund manager further emphasizes: «As long as interest rates are so low or even negative, residential properties offer many investors one of the few opportunities to achieve a positive return with low risk.»
[Jürg Zulliger]