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The Increase in the Basic Interest Rate to 14.25% Changes the Scenario for Real Estate Funds. The Return of Conservative Alternatives Gains Strength, While FIIs May Suffer from Adjustments in Shares
The basic interest rate of Brazil has returned to the level of 14.25% after the Copom‘s decision. For those investing in real estate funds (FIIs), the scenario is mixed, with advantages and disadvantages.
On one hand, paper funds benefit from the increase. On the other, brick funds lose value. Still, there is room for strategies.
Paper Funds — Higher Return, But with Risks
Paper funds, which invest in real estate credit securities, tend to benefit from high interest rates.
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Many of these assets have yields tied to inflation or CDI. With Selic at record highs, CDI follows suit. This increases the returns of the funds. When these securities are indexed to CDI, the increase in Selic raises payments. This generates more dividends for investors.
However, it is important to highlight a point of concern: The debt of the CRI is paid by the debtor. And the debtor feels the impact of rising interest rates. This can increase the risk of default.
The rise in interest rates for paper funds takes about a month to reflect in the value of the shares. After that, the movement tends to attract more investors.
Brick Funds — Negative Pressure, But with Opportunities
Brick funds, which invest directly in properties, feel the negative effects of high Selic more acutely.
The main reason is the impact on the real economy. High interest rates reduce consumption and make credit more expensive. This can affect the tenant companies of the properties.
With less consumption, businesses face more difficulties.
This can lead to a decrease in the occupancy of the funds’ properties. Lower occupancy means lower revenue, which harms the distribution of dividends.
Despite this, some analysts see opportunities in brick funds because brick FIIs are the ones with the biggest discount compared to fair value.
In other words, when interest rates rise, the value of properties tends to fall. For those thinking long-term and about generating dividends, this may be a good time to invest.
With high Selic, properties continue to exist, and lease agreements continue to generate revenue. If the share price is low, the percentage return can be attractive for those holding the investment.
Risk and Opportunity Go Hand in Hand
Selic at 14.25% has changed the game for real estate funds. Paper funds benefit directly but must deal with the risk of default. Brick funds suffer from high interest rates but offer discounts and can be good long-term bets.
Investors seeking passive income should evaluate their profile and the risks involved.
For those looking for immediate returns, paper funds are the most obvious path. Meanwhile, those aiming for the future may see brick funds as an opportunity with attractive prices.
Finally, the recent movement of Ifix shows that part of this scenario is already being absorbed. The market adjusts, and investors do too.
Volatility still exists, but opportunities continue to arise.
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