For Italians, the house has always been considered one of the safest forms of investment, especially in periods of strong economic uncertainty or inflation. In recent years, however, alongside the traditional purchase of properties, financial instruments have become widespread that allow you to invest in the sector without necessarily purchasing a house. Among these there are real estate funds thanks to which it is possible to participate in the trend of the brick and mortar market through the purchase of investment shares. To better understand how this sector works it is important to also know the indicators that are used to monitor it such as the real estate market index.
What is the real estate market index
The real estate market index is an indicator used to monitor the performance of the sector in a specific period of time and in a specific territory. Thanks to it it is possible to know whether house prices are decreasing or increasing and how the rental market is moving as well as the demand for properties.
There are various types of market indices and each is dedicated to a specific aspect of the market.
One of the most important is the property price index, which is what monitors changes in the value of homes over time. There are also:
- the rental index which analyzes the trend of rents;
- the transaction index which records the number of sales in that specific period;
- the accessibility index which is used to evaluate whether families can really afford to buy a house in relation to prices and available incomes.
How is the real estate market index calculated?
The real estate market index is obtained by collecting data from sources such as public statistics, real estate agencies and land registers.
We start from the collection of data on sales, rents and values of properties sold in a specific area: this data is updated regularly to have a more realistic picture of the market situation.
After collection, this information is analyzed using statistical tools which give the possibility of comparing today’s values with those of the past. In this way it is possible to understand whether the real estate market is slowing down, growing or stable.
The results are finally published periodically and used to understand if it is the right time to invest, buy or sell.
Today, in a period characterized by economic uncertainty and geopolitical crises, this index is even more important for making more informed decisions.
What are real estate funds
The performance of the real estate market index is controlled by those who want to sell or buy a home and also by financial companies and investors operating in the sector. Real estate funds fit into this scenario, financial instruments that allow you to invest in real estate without directly purchasing a property and which are part of collective savings investment organizations (Oicr).
They work like this: the money collected from multiple investors is managed by professionals in the sector who invest it mainly in properties, land or shares in real estate companies. The profit obtained is then distributed among the participants based on the shares held.
There are various types of funds: there are retail ones, open to all investors and reserved ones which are intended only for qualified investors.
Furthermore, some raise money while others rely on the contribution of existing properties. Another important element that distinguishes real estate funds is that they are closed. It means that the capital is defined at the beginning and cannot be withdrawn freely at any time, as happens with open-end funds.
As regards the reimbursement of the units, however, it only takes place at predefined deadlines so this type of investment is more suitable for those with a medium-long term horizon.
What is the tax regime for real estate funds
Real estate funds enjoy a particular tax system as they are exempt from income taxes such as IRES and IRAP.
It means that income received from rent or capital gains from the sale of property is not taxed directly by the fund.
Taxation instead applies when the fund distributes earnings to investors or during the transfer of shares or redemption.
The management of VAT obligations is entrusted to the Sgr (savings management company) as the fund does not have its own legal personality.
How the regulations relating to funds have changed over the years
The regulations relating to the funds have been modified over the years to avoid abuse.
Some of these instruments, in fact, were created only to obtain tax advantages, without any real real estate investment activity.
Precisely to avoid improper use of real estate funds, today the tax regime varies based on the type of investor and his share in the fund.
The legislation distinguishes, in fact, between institutional investors such as banks, insurance companies and pension funds and non-institutional investors such as private citizens or small savers.
This serves to guarantee greater transparency and to ensure that real estate funds are truly used as collective investment instruments and not just to obtain tax advantages.
What are the risks of real estate funds
Real estate funds also present some risks and the main one concerns liquidity. The reason is that, as long-term instruments, shares may be difficult to sell quickly, as is the case with stocks.
Then there is the risk linked to the performance of the real estate market: if the value of the properties drops, in fact, the fund can also lose value.
Finally, earnings are not guaranteed because they depend on the quality of management of the fund and the performance of the real estate sector.
In which sectors do real estate funds invest
Real estate funds can invest in various types of properties including offices and properties intended for the tertiary sector.
There are also funds specialized in logistics and production real estate, a sector that has grown significantly thanks to the development of e-commerce and deliveries.
Others instead focus on the commercial sector, such as shopping centres, outlets and spaces dedicated to retail sales.
Finally there are those focused on the residential sector or linked to houses and apartments.
What to do before investing in real estate funds
Before investing in real estate funds it is important to evaluate:
- what your goals are;
- the time for which you intend to maintain the investment;
- the level of risk you want to face.
Furthermore, it is necessary to carefully evaluate the costs and liquidity, i.e. whether it is possible to recover the money quickly. The reason is that unlike other financial instruments, funds are more difficult to sell easily without suffering losses, especially in periods of market slowdown.
Finally, it is essential to carefully read the information prospectus and the official documents of the fund because they contain important information on the risks, investment strategy, costs and characteristics of the properties purchased.
