Real Estate Funds: Poor Performance in 2019

In Costa Rica, yields on these investment instruments have been declining since 2017 and even more this year, partly because of the increase in the unemployment rate of real estate.

Monday, September 9, 2019

The prices of real estate investment fund shares on the stock market have fallen significantly in the last year. Economist Adriana Rodríguez, director of the consulting firm Frecuencia Económica, explains what to expect in the medium and short term.

"... Investments in real estate funds are an important allocation within a diversified investment portfolio, since they provide exposure to the real estate market and, in addition, because of their long-term nature, lower liquidity and greater sensitivity to the economic cycle, they generally provide a higher return than that offered by other instruments such as bonds or certificates.

However, the performance of these funds in Costa Rica over the past year and a half has been disappointing.

Thus, of the 9 most traded real estate investment funds, which recorded transactions between $22.8 and $77.9 million from 2017 to date, only 2 do not show losses in the value of their share so far this year (although their prices have not risen more than 0.8%).

Among the 7 largest funds with losses, the average fall in their prices this year is -9.5%, with the most dramatic falls being 20.7% and 12.3%. The most traded real estate fund in the market reports a -11.7% loss this year, after -19.04% last year.

What's going on? The liquid yields offered by these funds (derived from the rent paid by tenants for rent) and the total yields (which incorporate the physical and financial revaluations of the properties) have tended to decline since 2017 and strongly during this year, together with the higher percentages of unemployment in the industry.

Currently, the industry's unemployment percentage is 12%, and this has been its average level since 2017, when it reached a maximum unemployment level of 16%. During previous years, the average unemployment was less than 8.3% according to data from Sugeval."

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