One of the advantages of being an independent advisorIn other words, it does not charge for the products it recommends is that you can recommend any type of asset, sector or country. Even recommend to your clients that they keep their money in a checking account. In case you didn’t know, 95% of Spanish consultants take a commission from the products they recommend / buy for their clients.
We can also recommend the real estate market in any of its modalities. Certainly, private banking clients are offered real estate investments, but they have to be those in which the entity takes a commission. And advisors and managers in general can recommend the sector through funds -sectorials, REIT, socimi-, since all of them yield commission. But they will not recommend that you buy apartments on the coast – like that, in general – or penthouses in big cities.
Even so, we do not recommend the real estate sector in its day to take advantage of the possible impact of the economic recession generated by the confinement on the prices of the ‘brick’. In fact, we recommend reducing positions in real estate funds to increase them in funds that invest in large stock indices, first in the US and China -during the pandemic- and recently more globally. But, in any case, equities.
It is especially striking that the ‘brick’ has lagged far behind the profitability of the stock indices
In fact, behind the forces that led us to recommend taking positions in equities, the strongest of all, that of central banks, it would also have been valid for the real estate sector. It is more than proven that the main beneficiaries of the massive liquidity injections made by central banks are bonds, stocks and the ‘brick’. But not necessarily in this order or all at once. That is the key.
It is especially striking that the ‘brick’, without having done precisely wrong -especially in the US-, on this occasion has lagged far behind the profitability of the stock indices. To get an idea, since it bounced in April, the S&P 500 has risen 75%. And I don’t want to tell you if we catch a sector index of technology or ecology, to give a couple of examples.
The reasons why we did not recommend the real estate sector to take advantage of the tsunami of liquidity of the central banks and the hope in the arrival of the vaccine were two: the telecommuting and the confinements. And not because we think that in the future people will continue to work from home. We are surely going towards a hybrid model.
Which It is not clear that whoever goes to the office is going to do it in the city center. If something has been proven, it is that in many businesses it is no longer necessary to spend the money in an office in the center.
Something similar happens with housing. Will people forget how hard it is to spend a confinement in a flat and prefer terraced houses with gardens and apartments with terraces? Or in a few months they will have forgotten and they will prefer neighborhood life? What will happen to the thousands of homes left by the victims of this tragedy, which has preyed on the elderly? What will your heirs do? Will they keep them or sell them?
All of this affects direct investment, but also the decision to invest in a Socimi. Perhaps investors’ preferences are oriented towards those with properties on the beach. Or those that instead of offices have industrial warehouses to attend the logistics of electronic commerce.
What will happen to the thousands of homes left by the victims of this tragedy? What will your heirs do?
These are just examples of the uncertainty about the right type of real estate asset to invest in for the future, uncertainty that is probably one of the factors that has held back investment in the sector. He certainly stopped us from recommending it. And beware, I say the type of asset, not the sectorWell, it is one thing that for the moment the real estate sector is not the main beneficiary of the tsunami of liquidity of the central banks and quite another that it will not be in the future.
It’s a question of timing: first it was the bonds (fixed income), then the Actions (equities) and then it will be the ‘brick’. In fact, it will be the main beneficiary of the loss of attractiveness of the bonds. The question is what type of brick, what will be the time to invest in it and which will be the right product to make the investment. Or if direct investment is better. We will continue to inform.
*** Victor Alvargonzález is an independent financial advisor and founding partner of Nextep Finance