Pandemic and low interest rates produce new types of real-estate funds
In the post-covid-19 world, in which many people will continue working from home, the residence tends to regain a central position in family life. Add to this an expectation of low interest rates for a long time and you have the recipe for a market that until recently was just beginning to gain potential of having a prominent role in Brazil's real-estate fund industry.
Residential FIIs, as real-estate funds are called, are a recent innovation. Whereas until 2018 there were no funds with such characteristic, today there are 23 listed on exchange B3 investing in residences - though some also put money in project developments.
Of the total, about six portfolios are "purely" residential, which means they were created specifically to invest in properties of this kind. The others are hybrid: they may invest in any class of real-estate asset and have resources in this strategy.
Low interest rates were the key factor not only for the birth of this niche, but also to make it grow fast. "In the past, in a scenario of high interest rates, the income generated by residential properties had no competitiveness," explains André Freitas, founding partner of Hedge, an asset manager. "But now the low rates have been making many people look at alternative classes of investment, including rental, especially of smaller one- or two-bedroom houses."
In addition to the economic situation, the development of the FII market, which reached more than 1 million investors and trades a record R$4.4 billion per month on the average of 2020 through October, according to B3 data, helps support demand for new investment options. "In the past the residential property was not attractive in terms of return compared with an office space in Faria Lima," says André Catrocchio, partner of asset-management firm Hectare. "But now the market as a whole manages to gain scale and transform residential management into financial product." Faria Lima, name of an avenue, also refers to the financial hub of São Paulo.
The market's latest residential real-estate fund, Rio Bravo Renda Residencial, concluded a R$104 million fundraising in October. Fund manager Felipe Rosa says the FII's regulation is comprehensive: "We can act in the acquisition of residential units during the entire development process, from the purchase of land to the finished property."
The portfolio basically aims to provide rental income of the purchased units. But it can also sell the assets, "if it identifies good...
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