Brick haven or BTPs, that is the dilemma. In the current context, is it better to invest money in Italian government bonds or in real estate, the ultimate safe haven for investors? The solution is not simple, in an attempt to fid the solution, multiple factors must be considered.
BTPs vs Real Estate Advantages and Disadvantages
Firstly, it must be noted that investing in BTPs is by definition more liquid or easily liquidated, with a short to medium-term time horizon, while real estate investment has a necessarily longer-term perspective. In times of high inflation, driven by costs rather than demand, as is the current situation in Italy, BTPs suffer a gap between interest rates and inflation that progressively erodes the real value of the investment, while real estate, in these contexts, tends to preserve its intrinsic value more effectively.
The Location Factor
Speaking of real estate in general is inaccurate, we cannot simply consider a real estate vs. BTP situation . To evaluate real estate investment, it is necessary to consider the fundamental factor: location. For real estate investment to be successful, the location must be of high quality or have strong potential, allowing for the necessary upside.
The Levarage Factor
Another element to consider is whether the investment is leveraged or made without any recourse to financing, using funds perhaps deposited in the bank. The steep increase in interest rates in recent months has radically altered the perspective, strategies, and outcomes of the comparison.
The Tax Factor
Furthermore, the analysis must take into account the specific taxation of each investment and the “cost” of the investment itself, which, in the case of BTPs, is more easily determined. In the case of real estate investment, costs depend heavily on the expected maintenance costs and the energy quality of the building, a factor that, in light of the entirely inconsiderate European regulations during issuance, could destabilize the real estate market considerably.
Mortgages in 2023
Moreover, the poor energy quality of the property poses an additional difficulty in obtaining financing,at rates and conditions more unfavorable for the buyer. The current data from the Crif barometer for the second quarter of 2023 indicate a 22.7% decrease in mortgage demand and a 23.8% decrease in processing; simultaneously, in the commercial real estate market, there is a sharp slowdown with a reduction in transaction volumes in the first half of the year in the range of -50-60% compared to the same period last year, precisely because financing conditions have proven to be prohibitive, and simultaneously, there are no synchronized reductions in values reflecting market dynamics. In this generally bleak picture, one of the few bright spots is the inclination towards “green” mortgages for energy efficiency in homes, which now represent 10% of total home purchase mortgages (it was 9% in 2021) and 23% of those intended for renovation and/or construction (it was 13% in 2021). Consap notes a constant and increasingly massive increase in requests to suspend payments on first-home mortgages in 2023.
The Growing Competition Between BTPs and Real Estate
In this scenario, in many cases, investing in BTPs has become competitive if not better than real estate, considering differences in tax treatment and acquisition and management costs. The problem highlighted by experts is that large investors are in a wait-and-see mode, and prices have reached often unreasonable values in relation to old buildings, especially from an energy perspective, and are therefore likely to depreciate compared to the current yield of government bonds (but one wonders if these will also maintain their value in 2-3 years).
Furthermore, the initial savings on notary fees, in terms of liquidity, no longer attract the under-36 Isee audience with incomes below 40,000 euros as they once did, and in the new 2024 financial law, there is no mention of the renewal of the 80% reinforced Consap guarantee that drove 11 billion in financing.
In the BTP-real estate competition, a boost may come from the 2024 Financial Law currently under approval. Article 39 of the Budget Law contains a provision that would exclude the portion of wealth invested in BTPs from the calculation of Isee; a help for the Treasury, but also for families, who could see their eligibility requirement decrease. This, of course, aims to encourage Italians to buy BTPs, helping the country finance itself. Next year, 480 billion euros in government bonds will have to be placed, compared to 320 billion in 2023. The competition is therefore open and promises to be very tight.
