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Süddeutsche Zeitung:

As profitable as stocks, but safer

November 23, 2016

A long-term study shows that anyone investing their money in real estate can evidently avoid a classic conflict of interest. Because compared to various asset classes, the returns are high and stable at the same time.

The investment keeps consumers confronted with conflicting goals and unpleasant decisions. Do you want to achieve a high return with your money or rather invest it as safely as possible? The question usually comes in every consultation. And investors learn early – albeit reluctantly – that there can only be one thing: a high return or a high level of security. If a bank accountant ever promises both, one should rather go on the spot, it was said for a long time. Because then it would certainly be a scam. But for the asset class real estate , this economic conflict between security and return seems to be undermined to be, as economists have now found out in a comprehensive analysis.

“Maybe the Swabian housewife has always known,” says Moritz Schularick, economics professor at the University of Bonn, what he and his colleagues Òscar Jordà, Katharina Knoll and Alan M Taylor is so taken aback: “Residential real estate is a very lucrative investment and relatively safe. ” The researchers examined asset classes (equities, bonds, bank deposits and residential real estate) for their return performance from 1870 to 2015 for 16 industrialized countries. It is the first such study to date on such a scale as Schularick recently announced at an event organized by EABH (European Association for Banking and Financial History) and Allianz Global Investors in Frankfurt. In the asset class ranking, real estate outperformed equities (7.8 per cent), bonds (1.46 per cent) and bank deposits (0.3 per cent) with an average annual return of 8.7 per cent over the entire period.

Even in the period from 1950 to 2015, shares with 9.59 percent average annual yield brought little more than real estate at 8.3 percent. However, economists are particularly surprised that real estate returns are much less volatile than equities. “The best investment you could make under risk / return in the past 140 years was residential real estate,” says Schularick. But why do properties, like stocks, generate high returns while offering high levels of security? The real estate market is more illiquid than the stock market. “Rents are very stable in a recession, as opposed to dividends,” explains Schularick. Leases are very rigid. Even in a recession, the home is not easily quit, while dividends often fail. Before consumers move into a cheaper apartment, they prefer to restrict themselves in other areas. After all, you always have to live, says Schularick. All this ensures relatively stable rental payments. However, real estate is also a special asset class for other reasons: “There are a number of government incentives to acquire real estate,” says Schularick. In many countries, the home is subsidized by the state. Also in this country, for example, home savings contracts or residential Riester beckons under certain circumstances, government allowances or rental tax deduction options.

The results of the investigation, which are also available on the Internet at , many economists are likely to be thought-provoking. We know the least about the most important asset class, says Schularick: “Economists have long regarded real estate as a major lump risk, and science is only waking up now.”

Since the financial crisis, which started with the mortgage crisis in the US, the real estate markets have moved more into focus. Germany is a special case: “So far, the real estate boom has not had such a strong impact here: In Germany, the stock market performs better than the real estate market,” says Schularick. Nevertheless, the Bundesbank recently warned. Consumers should not underestimate the risks given the low interest rates. Because the interest rates can rise again. Real estate loans become more expensive. “Real estate is not as easy to sell as shares in case of an emergency and sell quickly,” warns Schularick. Moreover, it is not clear that property returns will continue to be so high and low in fluctuation. “As soon as real estate is bought more as an investment, prices could become more volatile,” says Schularick.