Yield hunting in times of currency devaluation
Two-digit, now quite official: for October 2022, the inflation rate in the euro area was announced as 10.7% (previous year: 4.1%); a record! And in some areas and countries, the rate of inflation is still well above this average. Both the height and the dynamics are frightening. Should this development only stagnate, the euro will lose half of its current purchasing power within the next seven years.
Normal people, who have less and less to live on anyway, are helpless in the face of this cold expropriation of euro assets. The countries, on the other hand, reduce their debt at the expense of their citizens - seemingly elegantly without any tax increases.
The fact that extreme political fringes are strengthened and coups are fueled by the impoverishment of broad social strata, especially the stabilizing middle class, is obviously accepted by those in government. Nobody wants to expect the truth from their constituency, if they know it at all. It is better that government grants fill gaps in the short term. And thus fuels inflation in the medium term.
State intervention and negative consequences? Nothing new! Ronald Reagan said so more than 40 years ago: "The top 9 most terrifying words in the English language are: I'm from the government, and I'm here to help." Of course, these developments also have consequences for investors. If they rely on cash to wait for buying opportunities, then if possible not in soft currencies like the euro, but in dollars or Swiss francs. When considering specific investments, they have to subtract the loss of purchasing power from the expected regular returns in euros in order to obtain reasonably comparable figures for his decision.
At the same time, it is important to keep an eye on the return on the investment, i.e. the difference between the purchase and sales price. And finally, there is the safety factor. This refers not only to the creeping loss of value due to inflation, but also to a worst-case scenario of total loss or even expropriation.
Anyone looking for an investment that yields a top return, is absolutely safe and, on top of that, does not require any work, will forever be chasing an illusion. But in every economic phase there are assets that are sometimes more, sometimes less suitable for an investment. Especially in uncertain times, real assets come into play as classics: stocks, gold and real estate.
Stocks are a topic in themselves. They require a lot of attention and are therefore not suitable as a carefree investment. Gold, on the other hand, does not yield any current returns and is currently hardly keeping up with the development of inflation. However, gold acts as safeguard against the absolute worst-case scenario. What remains is concrete gold. This is weakening in the German-speaking area after more than 10 strong years in which prices only knew one direction: upwards. Real estate was the first to mark the spillover of financial market inflation into the real markets. In the meantime, this price wave is collapsing for a variety of reasons. In addition to the demand from buyers, the situation of the tenants has become more difficult. The end of the road seems to have been reached for residential real estate, especially in metropolitan areas. Due to the high purchase price on the one hand and low rents (e.g. due to the government-imposed rent cap) attractive returns can no longer be achieved here.
Even expropriations in the case of vacancies can no longer be ruled out. The home office effect, among other things, has had an impact on office properties. There is now a surplus of supply here, which means that only modern space with the latest technical infrastructure and a direct connection to local transport can be rented. Older offices, which remain unlet-able at previous asking prices, are at a disadvantage.
Things are also looking bleak for retail properties, shopping centers and malls. Galeria-Kaufhof's applications for government support and bankruptcy applications are just the tip of the iceberg. Structural changes that have been overslept and changed buying behavior (via the Internet) are just two of the main reasons for rental prices stagnating or falling across the board. However, commercial special properties in the form of warehouse and logistics buildings, which can now be seen everywhere on motorways and feeder roads, were able to benefit from digitization.
Hotel properties also belong to the class of special properties. Actually commercial real estate in the tourism industry are subject to very special market laws that differ significantly from those of other types of real estate. But here, too, it is important to separate the wheat from the chaff. So what should an investor who is interested in this still interesting market segment look out for? What factors characterize a hotel investment that is safe, brings fair returns and does not require any work?
As with all real estate, the location of the property naturally plays an important role in determining its substantial value. Then there is the building and its architectural design. And finally it is up to the operator whether the investment becomes a carefree investment. Serious management with a flexible concept and a well-known brand generates returns of up to five percent per year. That may not be much in times of current double-digit inflation. But first of all, you don't have to worry about anything anymore and you have consistent, calculable returns over decades. Second, the lease is often guaranteed by a bank or insurance company. And thirdly, the value of the property increases at the same time as inflation - an average of four to five percent per year.
HotelInvest takes all these factors into account when analyzing and selecting its offers. A current example (as of November 2022) proves that this is no gray theory: HotelInvest is offering a new hotel in the Düsseldorf / Krefeld area. It is leased to a renowned German hotel and restaurant chain, which in turn runs it under a franchise license from a leading global hotel brand. The 20-year lease with a fixed lease brings a guaranteed return of five percent per year. In addition, an increase in value of land of three percent per year can be expected. In this case, as an investor, you have peace of mind for 20 years. And can focus on more exciting things in a relaxed manner, such as the volatile stock markets.