(Telestock) – Between a property and an investment in BTPs and pension funds, what is more convenient? The answer comes from Moneyfarmwhich compares the short- and long-term rates of return of a real estate investment, a BTP and a pension fund, taking into account pros and cons: with respect to real estate, BTPs and pension funds are easier to manage, more liquid and allow partial and progressive investments over time, even if the value of both instruments is subject to fluctuations depending, respectively, on the trend of interest rates and the financial markets underlying the investment lines. pension funds then offer an income only starting from from reaching retirement age onwards, with a variable value based on retirement age.
The stable yield of brick but…
Investing in bricks and mortar has advantages both from the inheritance point of view and due to the fact that rents and sales prices are revalued due to inflation, but there are numerous disadvantages. these are investments poorly liquid and flexiblewhich are associated with specific risks related to management difficultiesfinding tenants, arrears and extraordinary expenses.
Looking at the yield of a property, from 2010 to today, the house price index is in positive territory only for newly built properties, while the purchase costs of existing homes have actually decreased. The latest Istat data show that from 2010 to today, the house price index is in positive territory only for newly built properties (+24%), while the purchase costs of existing homes have actually decreased (-16%)
The National net yield of a property for rent is around at 3.1%, while in Milan and Rome, due to higher purchase costs, the yield drops to 2.7% and 2.9% respectively.
The BTP-People’s Revenge
Last spring we witnessed the return of BTP-People: the two placements of BTP Valore made a clean sweep, confirming that, as an alternative to bricks and mortar, Italians really loved BTPs. government bonds local, because they are safe and, compared to real estate, they are easier to manage, more liquids and allow partial and progressive investments over time, although they are influenced by the trend of interest rates and financial markets.
Currently, the net effective yield of the longest BTP currently on the market (maturity 2072, gross coupon 2.15%), net of withholding tax and thanks to the price of approximately 61 euros, is around 3.1%, therefore comparable to the average real estate income.
For the long termto understand which, between real estate and BTP, is the instrument capable of ensuring the highest return, key variable is inflation. After 10 years, in fact, an average real estate investment with rents revalued at 100% of inflation could yield 52,928 euros, compared to 47,966 for a BTP 2072. The result would change if the rents were able to recover only 50% of inflation, in which case the forty-year yield of the two investments would be substantially equivalent: 143,060 for the real estate against 145,344 euros for the BTP.
In the case of properties in Milan or Rome, due to the lower net real estate yield, in a scenario of revaluation of rents at 100% of inflation, the BTP would remain competitive for the first ten years, to then be overtaken by the real estate yield; in a scenario of revaluation of rents for 50% of inflation, however, the BTP would prove more competitive for every time horizon.
Pension fund wins the game
Pension funds have the disadvantage that they offer a annuity only starting from reaching retirement age onwards, with a variable value based on retirement age, while real estate and BTPs provide almost immediate access to a flow of resources (rental fees or coupons) for the long term. As regards the taxationBTP and pension funds appear to be the instruments more protected and facilitatedwhile for real estate there is periodic discussion of possible tax increases (for example changes to the cadastral value on which taxes are calculated).
However, if we compare the average real estate yield (equal to the sum of the net rents) with that of a pension fund, with the same invested capital, the latter appears clearly ahead as the time horizon increases available and the risk associated with the investor’s profile.
In a scenario of real estate rent revaluation at 75% of inflation, the 40-year yield of a pension fund would be both in line – 180,635 euros in the case of a low-risk profile, with a focus on European government bonds – and significantly above – 540,339 euros in the case of a high-risk profile, with a focus on global equities – the average real estate income (174,119 euros).
“Real estate investments have always been a great passion of Italians, but the fact that a house can be both a financial asset and a tangible good with which to establish an emotional bond can lead to inefficient investment choices”, concludes Andrea Rocchetti, Global Head of Investment Advisory at Moneyfarm, adding “real estate investments, like any other type of investment, must always be analyzed with financial parameters, considering explicit costs, implicit costs and the opportunity cost, i.e. the possible alternative use of capital”.
(Photo: Photo by Mathieu Stern on Unsplash)