Since March 2022, the US Federal Reserve has aggressively raised its interest rates in order to control high inflation. This strategy had a negative impact on the real estate sector and caused a 35% drop in real estate sales at the end of last year.
Now, the rate hike has begun to take effect, since inflation went from more than 9% year-on-year in June 2022 to the current 5%. However, remains well above the Fed’s 2% target.
For this reason, it is expected that this year the Fed will continue to increase its rates, although in a much more moderate manner. Proof of this could be observed during May, when the entity raised them by just 0.25% to the range of 5%-5.25%, the highest since October 2007.
During May, the Federal Reserve implemented its tenth consecutive hike and, for the moment, did not rule out a further hike at its next meeting in mid-June.
Therefore, Given this scenario, Real Estate in the United States will continue to suffer, since, if we compare the current rate of return on asset income versus the interest rate on mortgage loans, the former continues to be negative.
On the other hand, thanks to the fact that rates began to rise more gradually in Europe, there the impact was less. In April, inflation in the European Union rose again and stood at 7%, although it was well below the 8.5% registered in February.
Currently, the interest rates of the European Central Bank are at 3.75%, the highest level since October 2008. In addition, Christine Lagarde, president of the entity, did not rule out future increases, since “this is not the end of the trip”. However, although 2023 could be recessive in the Old Continent, the outlook is more favorable than in the US.
In particular, the hope is related to the fact that, in various countries, such as Spain, banks have a large inventory of real estate assets still available and, fearing that it will continue to increase, large funds could enter with significant discounts.
In addition, once the rates return to reasonable values, in Spain the assets have a high potential for appreciation, since they are still 25% below their historical value, while the United States continues to be 50% above their maximums. records.
But, beyond the opportunities, it is important to clarify that, if invested through an investment fund focused on Real Estate, the investor hardly has absolute control over their resources. This is because, after placing them in the fund, the investor will receive in exchange a share in which, if the investment strategy works, could earn a return after a certain amount of time, known as an indirect investment.
To this is added that, when investing in an investment fund, we will receive very general reports on the position of the investment or the strategy that will be implemented in certain markets. But we hardly get precise information about where the assets are located and which ones were acquired.
However, this can be achieved by hiring a boutique Asset Manager, which will allow you to obtain annual returns in excess of double digits in hard currency. In this case, the investor obtains efficient professional management and, in turn, has control over his assets, since he invests directly in real estate assets.
In this case, investors will receive advice and management, but they will have the last word when making a decision.
CEO of Inmsa Real Estate Investments.
2023-05-14 03:21:12
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