Faced with the prospect of a inflationary period az rising interest ratesmany investors are interested in the suitability of investing in Civil real estate investment companies (SCPI). In this article, we will explore SCPI’s behavior during these periods and the elements to consider when making decisionsinvestment.
Impact of rising interest rates on SCPI
Several elements can influence SCPI’s performance when interest rates rise. Here are the main factors to identify:
- Financing the acquisition of real estate: As interest rates rise, the cost of real estate loans also increases, which may slow new SCPI real estate acquisitions and limit their growth.
- Property valuation: A higher interest rate environment can negatively impact the value of real estate held by SCPI, as investors generally demand a higher yield to offset the risk associated with inflation.
- Rent received: Rising interest rates may result in higher financing costs for tenants, which could be reflected in rents. On the one hand, it can improve it SCPI rental profitabilitybut on the other hand, it could lead to an increase in arrears if tenants get into financial difficulties.
- Liquidity: Higher interest rates may encourage savers to prefer other investments considered less risky than SCPI, which could reduce demand and affect the liquidity of the secondary market for SCPI shares.
SCPI and inflation: different directions depending on the sectors of activity
It should be emphasized thatthe impact of inflation and rising interest rates on the SCPI it also depends on the industry in which they invest. Let’s look at some examples:
Office SCPI
In times of inflation, companies generally try to increase productivity, which could boost demand for modern, well-located offices. Additionally, if the economy remains buoyant despite inflation, businesses will be able to withstand rent increases. So, Office SCPI would potentially be less affected by rising interest rates.
Commercial SCPI
When it comes to commercial SCPI, it will all depend on the type of assets and the location of the brands they are investing in. Some could benefit from inflation and economic momentum if they target businesses that can pass on additional costs to their customers. However, an increase in interest rates can also have a negative effect indebted consumerswhich could reduce their demand for consumer goods and thus affect businesses.
Residential SCPI
Finally, for residential SCPIs, interest rate increases can have ambivalent effects. On the one hand, this increases the price of a mortgage loan for individuals, and thus makes renting more attractive. On the other hand, high inflation could force renters to forgo non-essential expenses (including high rents) and encourage the search for cheaper housing. So residential SCPIs will need to pay attention location of their properties get out of the game.
Here are some recommendations to help you choose SCPI investments:
- Diversify your portfolio: By investing in different SCPIsespecially those who specialize in different sectors of activity, you will be able to limit the consequences of rising interest rates on your assets.
- Prefer SCPI with variable capital: SCPIs with variable capital are generally more resilient to changes in the real estate market as they benefit from more regular underwriter flows and can adjust their share price according to market developments.
- Analyze the quality of heritage: Prefer SCPIs that manage quality assets (well-located, modernized, well-maintained) to avoid rapid depreciation of your assets after a rise in interest rates.
- Track changes in interest rates and economic indicators: By being informed about these elements, you will be able to adjust your investment strategy accordingly and best protect your real estate assets.
To summarize, if the period rising interest rates can affect SCPI performance, it is also possible to adjust your strategyinvestment limit negative consequences. By diversifying their investment portfolio, choosing quality SCPIs and monitoring market developments, any informed investor will be able to continue to benefit from the benefits offered by SCPIs.