Real estate funds are cheaper: see what to do

The rise in the basic interest rate, the Selic, has affected the real estate fund market. With an increase from 2% at the beginning of the year to the current 5.25% per year, the price of FIIs has fallen on the Brazilian stock exchange, the B3. And this scenario does not have a date to end, as the expectation is that the Copom will raise the Selic even further in the next meetings.

As a result, the index that measures the performance of these funds, the Ifix, has already accumulated a drop of almost 5% in the year. In August, there was a drop of almost 3%. The fundamentals of the real estate market, however, remain solid. The quality of investments is still good. The drop is only a result of a change in investors’ portfolios.

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This happens because, with the rise of the Selic, other fixed income investments are once again attractive to investors. As a result, individuals mainly move towards assets that they believe are less risky, and abandon their positions in assets such as REITs.

When they do that and sell their shares of real estate investment funds, the value of the security falls on the secondary market—that’s what we’re seeing right now.

This causes a second sale movement: people who bought a share at R$130 and see the share being traded at R$120 are also scared and think they are losing money. These people then go to the market to sell their shares, wanting to limit their losses. They do this without realizing that their equity would be protected in the real estate fund, and that they are, in fact, losing money by selling when they are down.

After all, it is not necessarily because the FII price is falling on the stock exchange that its assets are losing value.

Imagine the case of a real estate fund that bought a mall: although the quota is falling, the mall continues to operate and earn rents. In fact, unless the fund has made a bad investment, the tendency is for assets to only appreciate in value over time.

The same goes for the income of the FII that buy CRIs: despite the drop in prices, most funds continue to pay dividends normally.

Let’s go back to the case of the mall: it is even possible that the FII will start to pay more dividends, with the gradual reopening of the economy. In other words, if you do not withdraw from the investment, you will continue to receive your remuneration, which may even be above 10% per year, equivalent to 200% of the CDI.

And now, let’s go to the second point: this fall could be a buying opportunity. There are several FIIs being traded on the secondary market below equity. It is the same as buying a product worth R$ 120 for R$100.

To better understand this relationship between the value of the FII’s share on the Stock Exchange and its equity value, the investor should look for the funds’ slides. There, the book value of each share is informed — and then, just compare it with the price listed on the stock exchange.

Investors who look at this decline as a buying opportunity will have yet another advantage. As the FII return is calculated on equity, buying shares below equity means that the return on invested capital will be even higher.

Finally, it is worth mentioning that, with the rise in the basic interest rate, it may be that the yields of the FIIs will get even closer to more obvious investment alternatives, such as CDB and LCI. Even so, I emphasize that investing in real estate funds is still important for the sake of diversification.

FIIs are part of a well diversified and structured portfolio. And in the long term, the perspective is that shares will appreciate, which can bring big gains, which are not in this account, to investors who know how to choose a good FII and enter or increase their position at the right time.