As Belgians are increasingly choosing to rent their main residence or flat, residential real estate is gaining in popularity among institutional investors.
The context of the last few years has prompted investors (banks, insurance companies and other investment funds) to diversify their investment strategy. And the least that can be said is that real estate is on the rise, with investors allocating an increasing proportion of their portfolio to it each year[1]. This includes residential property.
In Paris, Amsterdam or even Luxembourg, institutional investors are already buying up large blocks of flats. But what about in Belgium? At the moment, supply is scarce, but demand exists. We see this every day, and the trend is expected to accelerate with the crisis. This will create new opportunities for investors and developers alike.
Residential real estate - a market that has so far been unattractive to institutional investors
In Belgium, real estate in the broadest sense of the term drives diversification. In 2019, the level of investment in real estate in Belgium reached 4.4 billion euros, according to figures published by BNP Paribas Real Estate. This represents the second largest investment volume ever recorded, half of which comes from foreign funds.
Offices remain by far the most active sector, ahead of logistics, retail and healthcare (nursing homes, etc.). However, the health crisis could change the situation.
Until now, developers have only been interested in selling their flats individually. After all, Belgium has always been a country of owner-occupiers, with small investors benefiting from easier access to credit and lower prices per square metre than in other European capitals. It would have been a pity not to take advantage of this. But things are changing...
Shift towards a tenant market
The residential market consists mainly of home-owners, but this is starting to change. The move is already under way in Brussels, for example, where 60% of residents are now renting, according to the latest figures from FPS Finance. Occupational mobility, changes in family structures and the desire for freedom are gradually shifting Belgium towards a residential real estate market consisting of tenants.
And new regulations only serve to reinforce this shift. As the National Bank of Belgium's recommendations on equity capital have become stricter, borrowing has become increasingly complicated for (first-time) buyers, as well as for developers. The profitability of their projects is likely to suffer more and more, not to mention the fact that the pre-sales obligation has also increased.
Block sales - the right compromise
Our feeling is that block sales, which have been less attractive until now because they are less lucrative, will become more and more interesting for developers. This option allows projects to be launched and secured with a minimum of effort. All the more so since, with low rates and the resulting risk premium, the appetite of banks, insurance companies and investment funds for this type of property is only expected to increase.
Although rents have not risen much in recent years, the development of leasing should change this situation and improve capital gains. And portfolio management is expected to gradually become more professional, resulting in lower costs.
With this in mind, we are already mobilising our network and market expertise to facilitate contact between developers, operators and major investors. Investors are always on the lookout for the slightest opportunity in residential property in Belgium!
[1] “Appetite for Real Estate Investment among Global Institutions Reaches a 7-Year-High”, HodesWeill & Associates, 2019
