Investing in housing or in the stock market: which is better this year
It is no surprise to mention that the Spanish stock market has started the year irregularly and with serious doubts after the sharp decline of 15% last year due to covid-19.
In the real estate market, the scourge of the pandemic persists in the third wave. There are many great factors that affect the figures of the sector, in 2020 there was a loss of purchasing power of families of 11% of the national GDP. The demand in the rental market also fell by 17.7%, according to the NIE, due to the restrictions imposed by the covid-19.
In these moments of uncertainty, both sectors are still attractive, but when investing you have to make the right choice, so you have to choose very well, and today more than ever it is important to select the assets of maximum profitability and quality, and that they are as safe as possible.
If the aforementioned is what matters most, investment in housing starts with an advantage, at least in the short and medium term. According to data from certain web pages where homes are advertised, the gross profitability of the purchase of a property for subsequent rental rose to 7.5% last year. Which is to say that yields have weathered the harsh pressure imposed by the virus outbreak well since March 2020.
The numbers are always attractive, but the trend is quite important. The profitability of the leases stood at 7.9%, compared to 7.5% three months later. Therefore, there is still a slight decline that is directly related to the evolution of the housing rental market.
The important thing in this section is to combine well the attractiveness of rental income with the potential to increase the price of the asset. In January there was an annual increase of 1.6%. Which means that the market has done a great resistance exercise in the midst of the coronavirus.
House price for sale
The returns on traditional savings assets don't hold up. Such a popular product as Treasury Bills offers a negative return of -0.55%.
On the other hand, on the stock market only nine Ibex 35 stocks exceeded the average return on home purchases for rent in 2020. Shareholder compensation has been shaken up by the coronavirus intervention.
Although the crisis has passed a large salary bill, the Spanish market continues to be a leader in Europe. In December a report was made where profitability stood at 3.9%. Since 2014 there was no ratio lower than 4%.
In 2020, the total remuneration to the shareholder was 18,709 million, 41% less than the previous year, this is due to the prohibition of the European Central Bank to remunerate the shareholder to preserve their capital and solvency levels, banking has been the guilty of this historic decline.
Remuneration to the shareholders of Spanish companies.
The ideal of the remuneration is that it is sustainable, do not be fooled by the specific dividend yields of a company. Companies that participate in regulated markets are a good option since you can avoid surprises. In the stock market, it is mandatory to look for companies that combine a stable dividend and upward potential if you are looking for assets of the highest quality with assured returns. With the financial crisis of 2008, one thing became clear to us, that two assets with a reputation for being unbreakable, such as housing or fixed income, could go down.
The bottom line is that there is appeal between two interesting markets after the covid-19 adjustment. We must select the asset well with a mentality to invest in the medium and long term to get the most out of our money, for this we will give you the keys to choose well below.
Concepts to value:
1.- Diversification: A portfolio of stocks allows diversification more effectively than buying homes, which are usually a particularly attractive and defensive option in inflationary periods. Usually with the increase in rental prices it also rises when inflation also rises.
2.- Liquidity: In times of pandemic this factor is quite important. The shares can be bought and sold at any time, on the other hand, the sale of a house can be delayed in time if they do not meet the expectations of buyers and sellers.
3.- Risk tolerance: The stock market is much more volatile than the housing market. Which means that the risk of suffering large increases or decreases in the valuation of the asset is higher when we buy shares. Choosing between two options will depend on the risk tolerance of the investor.
4.- Alternatives: It is always possible to invest in both markets. Investors have a large catalog of listed property developers who invest in rental assets. It is a mA way to invest for the brick without the high costs of a direct purchase
5.- Budget: Betting on brick has always been more expensive than buying shares. It involves significant tax and processing costs. On the other hand, brokers are increasing more and more, which allow you to sell or buy on the stock market at zero cost in certain situations.