"Returns on (prime) leasing are at 4.35% in Luxembourg"
From D A N I E L P E C H O N
Considered more remunerative than an investment in traditional bricks and mortar, and often not on the radar of the property aficionados, real estate funds, land banks, or even real estate equities have a great deal to offer. If you are looking at buy to let and to profit from property returns, but your financial resources are limited, or you are put off by the risk of a tenant who is a bad payer. Or if you simply wish to invest in property other than residential property. There is a solution that enables you to forget the constraints faced by all landlord owners. With the advantage of not having to invest directly, and of obtaining access to the property with only a modest level of investment. Specialist funds are available that enable access to commercial property, office buildings, businesses, logistics hubs, or even residential property. With a pooled risk, or risk shared by the various investors. Another advantage is that the risk is spread. Instead of being the owner of a single building or leased apartment, there are dozens of buildings within the company, and hundreds of tenants. With a lease related incident or a non-paying tenant, the consequences are clearly going to be less serious.
This is called diversification. It costs a little more in management fees, but peace of mind is on a different level. And the cherry on the cake is that the returns are much higher than for a savings account and life insurance. Returns are derived from two sources: the dividends distributed relating to the rental return, and the exceptional dividends due to the sale of properties, in the case of the transfer of a building property with increased value, or, quite simply, revaluation in the portfolio. This investment combines the advantages of bricks and mortar and the flexibility of shares. But when the stock exchange is having a difficult time, this is felt in performances. These values are therefore not immune from the vagaries of the market, but do sooner or later recover the inventory value of their assets.
Shares and funds.
For about fifteen months, the majority of property funds posted negative performances, given the rise in rates. These funds invest mainly in property shares. For example, Unibail-Rodamco, the commercial property leader in Europe, a company quoted on the stock exchange, posted a negative performance, down 5% since 1 January (-8% since 1 January 2016). In 2016, the 71 commercial centres in the group saw their net rentals increase, with a constant perimeter, by 3.4% despite an increased presence in Paris, affected by the terrorist attacks, which has caused a reduction in footfall in the shopping centres. The Unibail-Rodamco return, or dividend is 5%, with a European investment environment.
Another listed company, Leasinvest has fared better and is currently quoted at the same level as on 1 January (+13% since 1 January 2016) but above all, this is one of the rare companies listed with a portfolio mainly consisting of investments in Luxembourg. At the end of 2015, property assets consisted of 33 buildings, 14 of which were in Belgium (accounting for 41% of the portfolio value), 16 in Luxembourg (54%) and three in Switzerland (5%)).
The main investments in Luxembourg are the Retail Park in Strassen, the Knauf shopping centre in Schmiede and Pommerloch, the Monnet building, Esch 25, and Monterey 20 in Luxembourg, but also the Tour & Taxi warehouse in Brussels. But analysts are being cautious about Leasinvest with a target of 104 euros with Petercam / Degroof, 100 euros with KBC Securities and 96 euros with ING securities for a price of 105 euros (9/3). They all have the same view: “hold on”.
Other listed companies, Deutsche Wohnen, with a return of 2.4 %, is invested in residential property in Germany (+12% since 1 January 2016), Klepierre with a return of 5.5%, present in the shopping centres of Europe (-13% since 1 January 2016).
Luxembourg, on the lists
Alongside the insurance companies, and private equity, family office companies are increasingly fond of property, according to the Inowai Managing Director & Partner Vincent Bechet.
“Selling a building located in a smart district of Paris is easier than for one in the Cloche d’Or in Luxembourg. However the average return in Paris is close to 3%, whereas it is approximately 4.35% in Luxembourg. It has been thirty years since detractors announced the end of the golden age in Luxembourg, but also thirty years during which the market has performed marvellously well. However, Luxembourg is lacking in products for sale to attract more interest. Above all, given that the family office businesses buy with a view to assets, and investment is for the very long term. But Luxembourg seems to be increasingly on the lists of the professional property investors”, explains Vincent Bechet.
As for Brexit, one needs to keep a cool head. While M&G and AIG have announced that they are coming to Luxembourg, one must also consider the job losses in situ, such as the closure of Unicredit. It is clear that Brexit will have consequences, but these are only very early days. The returns on these property funds or property shares make them particularly attractive in the current context of low rates. Their success is also explained by their liquidity (subscribers can sell their shares at any time). However, after a tricky 2016, these funds are struggling slightly with the renewed tension on rates at the beginning of March with the German 10 year yield (Bunds) moving from 0.18 % on 24 February to 0.44% on 10 March. But returns (at approximately 5%) are still appealing.
From : Luxemburger Wort