SCPI’s or Property investment trusts, are capable of generating a gross 5% annual return and are uncontestably becoming France’s most attractive investment. This is one of our favorite investments and is ideal for expats seeking an additional regular income or simply wanting to make the best out a lump sum.
WHAT IS A SCPI?
SCPIs are investment companies authorized to issue shares to institutions and the public with the exclusive purpose of buying and managing property on behalf of the shareholders.
The nearest equivalents outside of France to an SCPI are ‘Real Estate Investment Trusts (REITs)’.
In the UK REITS have been around for less than a decade, and they are used primarily by large quoted property companies as tax efficient legal vehicles through which to manage their portfolio.
By contrast, SCPIs have been authorized by law in France since 1970, and under French law they are not able to be quoted on the French stock exchange. They are also used more widely as vehicles for new property investment.
There are now around 90 SCPIs in existence, with the largest having 100 or more properties in their portfolio.
The companies are managed by a professional management team (real estate asset managers) who collect the funds invested and undertake the acquisition, construction and management of the properties.
Their average 2019 annual return for this type of asset is 4.45%. Whereas the highest 2019 return known to date is 6,26%.
Income comes from the rent charged to tenants (mainly professional and large companies…), which is then paid out to shareholders in dividends, normally on a quarterly basis, pro-rata to the number of shares held.
The strength of the returns comes from the fact that the vast majority of funds are invested in commercial and industrial property, mainly around Paris and the Ile de France, but also in some of the other major cities of France, Europe and the world.
Investing in an SCPI gives the investor access to a market which alone they would probably not manage to reach. It also enables one to mutualizes risk.
The category of SCPIs most likely to interest the British expatriates are the “Performance SCPI’s” which are focused on paying dividends on a quarterly basis with no time limit.
Please note that like all financial or real estate-based investments, returns from SCPI’s are not guaranteed. However, these assets are classified in the lower scales of the EU’s risk level grid. (usually 3 out of 7), thus positioning them in the low risk asset category.
The most important indicator when considering investing in this kind of asset, is unquestionably the “occupancy rate”.
GERMAN BASED SCPI’s:
Recently, a new form of SCPI has seen the light. These new Property investment trusts are purchasing real estate in Germany.
The reason these are successful is because the “DTA” (Double Taxation Agreement) between France and Germany states that real estate is taxed where the building is actually physically situated, thus only the German authorities can tax Real Estate based on their territory. This immediately avoids shareholders paying the usual 17,2% Social charges which do not exist in Germany. The DTA also avoids the taxpayer having to pay twice for the same income, thus whilst one is still liable to declare that foreign income in France, a tax exemption equivalent to the amount paid abroad, overrides the French tax burden on that income.
Purchasing shares of a German based SCPI portfolio, therefore guarantees a steady income, exempt of social charges and benefits from a tax credit on real estate income.
Record fundraising for SCPI in 2019
2019 promises to be an exceptional year for non-trading real estate investment trusts. The previous record collection in 2017 (€6 billion in net inflows) will be largely beaten, with €6.1 billion in net inflows over the first three quarters of 2019. The €8 billion threshold will probably be exceeded for the full year, according to industry experts.