A paradox: bond yields almost doubled real estate returns: 12% annually in USA dollars. But this is not the case when actively investing in opportunity markets.
In an article published by El Cronista, it has been proved that the Argentine real estate market has been going through hard times in the last years. Financial income doubled real estate returns. And this is reasonable due to the phase of the cycle being undergone by the real estate market. But Mariano Capellino showed how it could have been possible to reverse the situation if instead of investing passively; an active strategy would have been used looking for the best markets to invest in.
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Bond yields almost doubled real estate returns: 12% annually in USA dollars
Even though Argentine people are by nature property-oriented, from 2007 to 2015 the financial income almost doubled that of real estate.
Even though Argentine people are by nature property-oriented, from 2007 to 2015 the financial income almost doubled that of real estate. According to some research conducted by Cushman & Wakefield, the Bonar 2017 bond yielded an average of 12.13% annually in USA dollars, against 7.37% obtained from a class A office. Anyway, gross income and net income should not be confused. Real estate is subject to more expenses and taxes than bonds, as they are issued by the government, they are exempted from income tax and personal assets tax and this should be evaluated when considering the investment. “We suggest thinking about the risks involved, especially those who invest in real estate developments. All costs involved must be analyzed, particularly the ones related to taxes and the lack of liquidity of the asset”, as warned by Hernán Faigenbaum, Managing Director of Cushman & Wakefield. “We always recommend our investors not to rush when making an investment, instead, we suggest analyzing in detail and purchasing only when they are sure that the value to be paid is the right one”, he adds.
“Real estate provides income and appreciation in the long term simultaneously. This benefit is practically impossible with any other investment asset. Also, real estate is an important diversification asset, as returns are not correlated with financial assets”, he says.
Mariano Capellino, CEO of INMSA Real Estate Investments Company points out an exception: “If you compare the returns obtained in other markets (USA 2009 to 2015 against American bonds) you can see that at that moment the returns obtained from offices were four times higher than bond yields”.
At your discretion, when investing in real estate, it is essential to have a global view of the situation, considering the cycles of the market in order to take advantage and fight inflation:
“Every 20 or 25 years of a complete cycle, there are five-year windows where the appreciation of the asset is quite higher than inflation. This was the case in the USA from 2009 to 2014, where assets increased, on average, 6% above the inflation of the country. Another example is what has been happening in Spain since 2015 where certain assets’ appreciation is 10% above the annual inflation which is only 1%”.
Of course, if comparing passive real estate investments, i.e. operating always in the same market during a long period of time, the returns obtained may be lower than the financial investment. But if you operate globally and actively taking advantage of markets crises and entering at the right time and exiting at the most convenient moment, the real estate investment could at least triple low-risk financial investment returns such as fixed-income securities. And, in some cases, it could be five times higher”, as stated by Capellino.