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SCPIs, a winning bet against 6.1% inflation?

While inflation has reached its highest level in more than 30 years, SCPIs recorded record inflows in the second quarter of 2022. However, stone-paper is not without risk. Especially in times of inflation.

Another blow for savers. Last July, inflation accelerated further to reach 6.1% over a year, against 5.8% in June. Either its highest level since 1985. Result? Even after two rate hikes in the space of six months, the yield on Livret A still fails to cover inflation. No more than that of bank books or euro funds.

So to limit the damage, more and more of you are turning to real estate investment companies (SCPIs), these financial instruments that allow you to invest in real estate on a mutual basis. In the second quarter of 2022, the collection of SCPIs thus reached the record level of 5.2 billion euros. But do inflation and SCPI always go hand in hand?

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Inflation indexation

On paper, SCPIs are the perfect investment bulwark against inflation. First because of their high yields: 4.20% on average over the first six months of 2022, according to France SCPI. Rarely, some even manage to outperform inflation. This is for example the case of SCPI Iroko Zen (7.10%) and Corum Origin (7.03%). Over the past twenty years, the performance of SCPIs has exceeded inflation almost every year, notes Jonathan Dhiver, founder of mieuxSCPI.com.

And it is not a hazard. Because SCPIs are one of the few inflation-linked savings vehicles. In concrete terms, these companies rent the real estate in which they invest and receive rents in exchange. However, the latter are indexed to the Rent Reference Index (IRL), the Commercial Rent Index (ILC) or the Tertiary Activities Rent Index (ILAT), all three of which take inflation into account.

The indexation of rents to inflation is a excellent protection for savers, explains Clment Renault, co-founder of online brokerage firm Louve Invest. When prices soar, the indices increase, and rents can be revalued accord- ingly.

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Rent control

At least in theory. Because this mechanism is not infallible. Especially in times of high inflation. And for good reason: in order to preserve the purchasing power of individuals and small businesses, the regulator has decided to regulate rent increases. The Snat thus voted in favor of a capping of the Commercial Rent Index 3.5% for 1 year.

What seriously impact the ability of SCPIs to pass on inflation to rents? Not necessarily, replies Clément Renault. For him, these framework measures are temporary and apply only to companies of less than 250 salaries. However, SCPIs prefer to rent their premises from major national brands, such as Jardiland or Casino.

But even in the latter case, it was not in their interest to increase rents too much. Too marked a rise would increase the default risk or of early departurewhich would harm ultimately their profitability, warns Jonathan Dhiver.

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Land price

The other part of the equation, when you’re calculating REIT returns, is the price of the shares. For several years, the real estate market has seen an almost uninterrupted increase in prices. All types of housing combined, the increase is estimated at nearly 22% between 2010 and 2020, according to INSEE data.

An increase from which the partners who hold shares in SCPIs have largely benefited so far, since the purchase and sale prices of the latter evolve according to the value of the real estate held by each SCPI. According to Aspim, the average price of an SCPI share thus increased by +10.01% between the end of 2013 and the end of 2020.

However, inflation could reverse the trend. Rising prices have two opposing effects on land prices, believes Clment Renault. On the one hand, inflation has traditionally tended to drive property prices up, because the cost of living increases, and with it, wages and rents.

But on the other hand, the high level of inflation forced the European Central Bank to raise its key rates by 50 dots last July. This increase, the first in 10 years, will have repercussions on the rates of loans granted by banks, continues Clément Renault. However, if credit rates increase, fewer people will be able to borrow. Demand is then likely to fall, and land prices could suffer.

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Bargaining power

Is the price of SCPI shares likely to fall? Again, difficult to decide. Because a drop in real estate prices would represent both a danger and an opportunity for SCPIs. Management companies have the advantage of being equity payers, ie they have little or no recourse to credit to finance their real estate purchases. They use in priority the funds collected from the partners, recalls Jonathan Dhiver.

Unlike individuals, SCPIs therefore do not have to fear an increase in the cost of loans. And that’s what makes them strong. In a market where demand is contracting, SCPIs have additional leeway to negotiate the prices of the properties that interest them, underlines Clément Renault, for whom the price of SCPI shares should remain stable in 2022.

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