Real estate funds – a revolution in the market

Leitura de 6min

The strength and profitability of real estate funds generated record levels of demand for this type of investment during the past year. Figures suggest that this potential will be realized in 2013. 

Real estate funds have historically always returned less than other investment options available to private individuals in Brazil – they even lost out to the “Caderneta de Poupança,” a state-structured savings account. But this “ugly duckling” for investors has been surprising in recent months. Increasing interest in the product has led to record levels of both supply and demand. The absence of income tax liability is often seen as the greatest attraction, but apparently it is not just this advantage that is driving what amounts to a revolution in the market.

Investors’ growing demand for real estate funds makes sense today, principally when we see this in the context of the results generated by other stocks in 2012,” said Roberto Patiño, who manages the area of Capital Markets at JLL. “This has led to a search for more reliable investment options.”

There’s no doubt that real estate funds were the highlight of last year, both for their levels of return and for the strong growth in supply. Data from Brazil’s Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) makes this very clear. New offerings totaled R$15.4 billion, more than double the 2011 amount of R$7.6 billion. And Fundo Imobiliário, a consultancy, calculated that the average return on portfolios being traded was 42.21%, counting both the rental earnings and the increase in the market value of the shares.

Forty of the 47 funds tracked by the consultancy performed better than the 8.4% return obtained on interbank deposit certificates (CDIs) in 2102. The IFIX index of real estate funds, calculated by the BM&FBovespa stock exchange, appreciated by 23.93% through the year. And according to Patiño, this is just the beginning.

This is a market with great potential, because it is still small in Brazil – it’s an option for safe and secure income,” he said.

Everything points to this forecast coming true. The start of 2013 saw strong signs of a heated market. Counting offers under analysis and those already registered with the CVM there are 17 operations totaling R$4.3 billion, which is almost 30% of the overall volume seen in 2012, a year when 48 funds were launched. “This market is maturing, and that is stimulating the emergence of new types of operations,” Patiño said.

One new alternative is aimed specifically at real estate development, where the investor carries the construction risk of a specific project. Patiño explained that the shopping malls sector is also likely to remain very active. “One example is the Shopping Pátio Higienópolis, in São Paulo, which has appreciated very strongly,” he said.

Promoting a wide distribution of new fund offerings at the retail level has also become much more popular. The number of private individuals opting for this type of investment grew by 175.3% in 2012, from 35,282 to 97,128 investors.

These facts underscore the resilience and profitability of real estate funds,” Patiño said.