Investing in housing or real economy companies?

Last year, 650,000 homes were sold in Spain. This is the highest figure recorded in 15 years since the real estate bubble bursting triggered by the 2008 financial crisis. Although sales are expected to be significantly lower (around half a million), prices will remain at record highs this year (although they are expected to fall next year). In addition, the Euribor has also consolidated above 4% in September. This is another historical figure demonstrating the rise in variable mortgage costs.

This breeding ground shows us that we are not at the best time to invest in housing, one of the products that most savers in our country have opted for since development.

Fortunately, numerous alternatives exist today for investing savings and obtaining interest for them.

Without going any further, on crowdfactoring platforms such as Inversa, it is possible to invest in something just as tangible, solid, and understandable as a home: real economy companies that generate work and wealth and contribute decisively to innovation and research.

In this article, we will analyze why there are better decisions than investing in housing in the last quarter of 2023 for reaping interest and passive income, and we will highlight the value of investing in small and medium-sized companies that need financing to grow.

Investing in housing and mortar, a Spanish classic that always returns

In the investment sector, many products on offer require a high level of financial knowledge to understand and manage them. Futures, derivatives… These complex products are not designed for savers and small investors. On the other hand, stocks are volatile and need to be managed by stock market experts. While other classic products, such as government bonds or bank deposits, offer low returns. That is why, since the 1960s, millions of Spaniards have invested their savings in a product that they could understand and touch with their own hands: real estate in general and housing in particular.

This process has been commonly referred to as investing in bricks and mortar and has had a transcendental importance in the evolution of the Spanish economy. So much so that investment in housing came to represent more than 11% of Spain's GDP before the bursting of the real estate bubble, and construction employed almost 3 million workers at the sector's peak.

Although the real estate crisis generated economic losses in the millions and drove away many investors, since 2013, more and more people have returned to invest in housing, as evidenced by the figures we pointed out at the beginning of this article. Why? Mainly because of the solid belief that housing, sooner or later, even if a crisis occurs, is going to be worth more in the future than at the time of purchase.

However, at times when prices are higher, such as now, it may take longer to exceed the purchase value, and multiple factors come into play that an investor cannot control, such as the revaluation of the city or neighborhood in which it is located, or the effects of more restrictive regulations on the sale and purchase or rental of housing.

Low vacancy rates, strong employment performance

The increase in the cost of mortgages and access to financing due to the rise in interest rates suggested that housing prices in our country would fall. However, this has not happened, mainly due to two significant factors:

• Housing is scarce, especially in areas where economic activity is concentrated, for example, in Madrid, but also in the driving cities of the regional economies, such as Malaga, Bilbao, or A Coruña.
• The Spanish economy and employment have been solid in recent quarters despite the war in Ukraine, inflation, and the rise in interest rates to curb it.

As a result, we find ourselves in a scenario in which the price of housing is at historic highs and, therefore, small investors are faced with two barriers when deciding to invest in housing:

• The high purchase price requires a more significant amount of money to invest in housing. Even if a mortgage is requested, having enough capital to pay the down payment is essential.
• The possibility that prices are peaking means that a home bought in 2023 may be worth less next year, making the investment unprofitable. Even if the house appreciates in the long run, the investor will have to assume the uncertainty of whether or not it will do so and wait for this to happen.

Supply problems and inflation make renovations more expensive

On very few occasions, a property is acquired in perfect condition to be able to live in it or to rent it. Hence, when investing in housing, it is essential to consider the money to be disbursed when carrying out work and renovating different spaces.

One of the most pernicious consequences of COVID-19 on an economic level was a crisis in the global supply chain, which has contributed to persistent inflation in the European Union.

Today, many essential building materials (PVC, aluminum, etc.) are priced at extraordinarily high levels, making home renovations more expensive.

Suppose we add that the rise in inflation is general and that the increase in fuel prices during the autumn will make materials even more expensive. In that case, we are not at the ideal time to contract works at an adequate price to make them profitable.

High mortgages and more restrictive rental regulations make obtaining income challenging

It is enough to consult any media to confirm that one of the main problems of the present time is the high quotas that have to pay the people who have contracted variable mortgages.

A scenario with high mortgages makes it difficult for thousands of people to decide to invest in housing. Facing the monthly mortgage payment can be a challenge. In addition, very high mortgages eat into the passive interest generation associated with rental housing. This brings us to another critical aspect when discussing housing investing: the rent regulation.

Last term, the Government passed a Housing Law, after a very complex negotiation between the coalition partners, which places restrictions on rents and rental price increases. In addition, to mitigate the effects of inflation on families, there have been caps on rent increases in recent years. As a result, rents have risen less than inflation, which means a reduction in the interest obtained by the person who bought the property as an investment that yielded passive interest.

Invest your savings in something as tangible as housing: real economy companies

In light of the complex scenario we have just described, could you opt for a product that is just as solid, understandable, and tangible instead of investing in housing? Yes, in real economy companies.

The productive fabric is one of the main assets of any country. The success of companies is critical for society as a whole since they are the ones that generate wealth and employment.

Until now, the number of companies we could invest in was limited, and the profile was extensive, for example, by acquiring shares on the stock exchange. However, investing in small and medium-sized companies is also possible today. How? On a retail investment platform such as Inversa Invoice Market, businesses in the real economy trade their invoices issued to advance payment and obtain the liquidity they need to undertake investments or manage a more significant workload.

Through crowdfactoring, thousands of investors can finance the invoices of real economy companies and obtain very attractive interest rates in return. At Inversa Invoice Market, the average return on invoices was 7.9% in 2022, and many invoices hover around 10%.

Beyond profitability, investing in companies can attract people predisposed to invest in housing because:

• It's easy to understand how crowdfactoring works.
• Investors decide which companies to invest in and which not to invest in. In addition to the financial information they provided, they can research the ceding and debtor companies.
• The materiality of the investment. Investing in housing is so attractive because it involves investing in a physical product that comes to belong to us. In the case of crowdfactoring, a company or part of it is not acquired. Still, the investment has a direct material effect because the money is used by a real company, which produces goods or provides services and employs workers.
• Investors retain full decision-making power over how their money is invested. Moreover, as it is a short-term investment since the maximum maturity of the invoices is six months, they can adapt their investment strategies according to their liquidity needs or personal interests.

Invest from 20 euros and contribute to generating wealth, employment, and innovation

Another essential aspect when choosing to invest in companies instead of housing is the money needed to invest. As we have already indicated in this article, to buy a house, it is necessary to have considerable savings. On the other hand, small savers can obtain a return on their money from as little as 20 euros.

The fact that the initial capital is so tiny opens the doors of the investment sector to all citizens. In addition, there is another differential factor: the speed of the process and the absence of bureaucracy.

Buying a home and obtaining a mortgage is a process that can be solved over time, but it consumes a lot of energy and requires going through a series of formalities. After all, investing in housing is an action that significantly impacts the economy of a person or a family.

In contrast, alternative financing platforms such as Inversa Invoice Market make it easy to invest almost instantly. Once an investor registers, they will receive a response within 24 hours, authorizing them to start investing in invoices from companies that generate wealth and employment and are fundamental to innovation.

Investing in housing is still an attractive option for thousands of savers. Still, today, they have at their disposal other investment alternatives, such as betting on companies of the real economy, safe, solid, and transparent, which offer attractive returns in the short term and contribute to the consolidation of the productive fabric and the welfare of people.