05 February, Requadro
The risk for real estate is on the rise. This is the opinion of the analysts of Mediobanca, according to whom, however, the solid macro foundations of the country might favour the real estate sector still for some time. For the period 2018/2019, the outlook for Italy is positive, both in terms of GDP, cost performance index, namely the efficiency of investments in real estate projects, and employment. However, despite the real estate stocks peaked in December 2017, the growth trend might be over.
In fact, the positive influence of the interest rates is almost finished. Already in December, the nominal rates resumed their growth, as it always happens after having reached the lowest point. Therefore, it’s reasonable to believe, according to the analysts of Mediobanca, that in the next 10 years the risk of an increase in the rates in Europe cannot but to rise. In this way, a not very positive phase for real estate will start.
According to Mediobanca, the commercial real estate in Italy is still solid. The demand from the investors is strong, while the offer, especially of core properties of high quality, is not suitable. As a result, prices and returns remain at interesting levels. For instance, the risk premium is still approximately 300 base points.
More in detail, Mediobanca expects that in Milan rents will grow in the period 2018-2020 by approximately 2-3%, against the +10% registered last year in the core segment, supporting the real estate assets also in periods of standstill. If in 2017 the investments in the commercial real estate in Italy reached a peak of 11 million euro, in 2018 the values will remain stable, with Milan leading the office segment.
Concerning the residential segment, the price reduction has reached 24.2% over the last nine years. This, along with the low interest rates on mortgages and the higher income of Italians, gave new impulse to the purchasing power. In any case, Nomisma expects that in 2018 prices will fall further by 0.3%, followed by a rise in 2019 to the same extent, and a +0.9% growth in 2020. The price rise will concern prime locations, while prices will continue to drop in the other parts, opening to new purchase opportunities.
Regarding real estate stocks, according to Mediobanca, the inclusion of real estate companies into PIRs has been broadly priced between the end of 2017 and the beginning of 2018. On the long-term, the outlook is for a higher liquidity originated by PIRs in the form of more dividend/yields and quality investments, making real estate companies attractive for investments within or outside PIRs.
In this perspective, the most favourite stock by Mediobanca is Coima Res (outperform evaluation with target price raised from 9.2 euro to 10.13 euro). The company, in fact, is well-positioned in the Milan office market, representing 72% of the total. Outperform evaluation also for Igd (with target price at 1.18 euro) that, in any case, will be under pressure till the completion of the capital increase, while the evaluation for Beni Stabili has been downgraded to neutral (target price is 0.78 euro) since its greater exposure to the risk of increase of interest rates due to the composition of its assets.
Translator: Cristina Ambrosi