- 3 min
Real estate paper (SCPI and OPCI) – an indirect investment in rental property
Investing in SCPI or OPCI shares via a life insurance policy offers all the advantages of rental investments with the benefits of the favourable tax system applicable to life insurance, without any responsibility for managing the property assets.
What is real estate paper?
Real estate paper refers to all real estate-based investment products. Instead of acquiring physical real estate, investors purchase shares in French real estate investment trusts (sociétés civiles de placement immobilier – SCPIs) or in French real estate collective investment undertakings (organismes de placement collectif immobilier – OPCIs), which in turn invest, either directly or indirectly, in a diversified range of rental property assets: offices, commercial premises, residential buildings, etc.
The management of these assets is carried out by a real estate professional (management company) that decides on property acquisitions and sales while limiting the risks relating to vacant properties.
When should you invest in real estate paper?
With a smaller capital outlay than for a direct rental property investment, subscribing to SCPI or OPCI shares allows investors to collect revenues relating to the management of a diversified range of rental properties that would be hard for individual investors to access directly, while pooling the risks and delegating the management of the properties and rentals to a professional in return for the payment of management fees.
Subscribing to SCPI or OPCI shares constitutes a long-term investment (a share retention period of at least eight years is recommended). The investment may be financed by a bank loan.
Investing in real estate paper allows investors to diversify their assets and build up a source of additional income, particularly with a view to retirement. With this in mind, investors are advised to make sure that any loans taken out in order to purchase shares are repaid by the retirement date.
The different types of SCPI
SCPIs are exclusively intended for the management of rental property assets. SCPIs can be divided into two separate categories:
- corporate real estate SCPIs, which focus on the distribution of regular incomes to investors (high-yielding SCPIs), and whose assets consist primarily of offices, warehouses and/or retail outlets;
- residential real estate SCPIs, which mainly invest in residential properties (apartments and single-family houses) – either newly built or in need of renovation – and generally benefit from the different tax breaks intended to encourage investment in the rental sector (e.g. the "Pinel" and "Malraux" SCPIs).
Breakdown of SCPI assets according to types of assets on 31 December 2014:
Source: ASPIM - IEIF
The different types of OPCI
OPCIs consist of mixed assets: 60% to 90% real estate assets, with the remainder consisting of other financial instruments (monetary, bond and stock-market products).
The term OPCI covers two legal forms of real-estate funds:
- FPI (fonds de placement immobilier) – a real estate investment trust
- and SPPICAV (société de placement à prépondérance immobilière à capital variable) – a unit trust fund specialising in real-estate investments.
What is the expected profitability of real estate paper?
The profitability of an investment in real estate paper generally corresponds to:
- the dividends paid to the investor by the SCPI or OPCI on an annual basis according to the rents collected each year (after deducting any charges relating to the management of the rental property assets: costs of maintenance and work carried out, rental management fees, insurance, etc.), and the SCPI's or OCPI's immovable capital gains or losses;
- the total amount of capital collected by the investor, either from the sale of his or her shares, or from the winding up of the unit trust.
N.B. It may be difficult to sell the shares, which may sometimes take several months. Furthermore, there are no guarantees regarding the performance and payment of dividends.
Investing in real estate paper through a life insurance policy
When permitted by the policy, it is often recommended to invest in SCPI or OPCI shares through life insurance. This is because the revenues are capitalised and the favourable tax system governing life insurance applies to withdrawals or to payments in the event of death.
Sources: Crédit Agricole - ASPIM