Your house has a particular value, for it is your safe haven, it is where your loved ones live and a little for cultural reasons. It goes without saying that owning a home is an element of security and stability. But the great propensity of Europeans to make real estate investments often did not stop at the first home.
In a large part of the population the idea is widespread that the brick is a safe investment, a safe haven asset in which to invest most of their savings. Then there is a huge unused real estate asset. Many people own one or more houses, perhaps as a result of inheritances received. Selling these properties can be complex in many cases.
Real estate is an asset like any other
If you are considering investing in real estate during 2021 it is good that you begin to understand that the brick is just one of the many ways to invest your savings. It is a fairly intuitive concept, even if not widely understood, because there is a tendency to attribute a special status to the house. In reality, the real estate asset, with the exception of the first home, should be treated like any other financial asset and be valued from a wealth management perspective.
Once you have assumed this way of thinking, here are the factors that you should take into consideration if you are looking at land for sale:
Valuation: If we look at the real value (which considers the effect of inflation) of properties over the last 25 years, we can see how it has dropped on average by 15%. This means that those who had invested in real estate would not have been able to protect the value of their capital from inflation, which has not even galloped particularly in the last 25 years. Keep in mind that the geographic location of your investment is critical. While real estate value has remained constant in large cities such as London, Rome and Paris, it has collapsed in other areas.
Taxes: If you are thinking of investing in homes today, or if you own unused properties, you need to consider the tax factor. If tax has been abolished on most of the first houses, the same cannot be said of the second houses. Then there are the local taxes.
Rent: Also, as a consequence of the high real estate ownership rate, the rental market in Europe is not reactive, except for a few geographic areas. The rate of default on the part of tenants is extremely high and the legal tools available to owners are limited.
Liquidity: Real estate investment is by definition not very liquid. Selling your home takes time and brokerage costs can be very expensive.
Diversification: If you already own a first home you are probably very exposed to real estate risk. From a long-term perspective, it is advisable to diversify your assets between different asset classes to avoid being too exposed in the event of a specific crisis in the sector (because it is important to diversify).
Ultimately, investing in real estate is still worthwhile in 2021 only in some cases and especially if you buy a house in a big city or in a renowned tourist resort. In evaluating it, however, one cannot avoid taking into consideration all the factors listed above. The important thing is to understand that investment properties are an asset like any other and to which there are alternatives.