The Horizon

Investing in property – but without the ‘misery’ of letting

Rental apartments are the favourite investment for Belgians with a small pot of savings. There is good reason behind the common Belgian saying that ‘Belgians have a brick in their stomach’. But bricks can be hard to digest!

Suppose someone decided ten years ago to invest the decent amount of € 260,000 in buying a rental apartment. Immediately after the purchase of the apartment there is a loss of 12.5%. That amount covers the registration costs which applied at the time. The remaining amount (around € 230,000) therefore constitutes the maximum budget for the actual purchase.

However, the rental income does not equal the net income: calculate a loss of 10% for property tax, 10.5% for insurance and maintenance and a total amount of approximately € 12,500 for personal income tax. The end result is a net income of approximately € 100,000 over ten years.

At first it seems to be a reasonable return (IRR) but, in reality, it is one that has taken a great deal of effort and time. After all, a rental apartment requires not only investments, but also the administrative hassle of maintenance, repair work and the search for new tenants. Not to mention the risk of vacancy if the search for new tenants fails or if you, as the owner, are in a legal conflict with tenants.

In our opinion, operating a rental apartment is not the best way to invest in property. Residential property is extremely robust – the corona crisis has proven this once again. But running one or two apartments means you operate with a high degree of inefficiency and also more risk. Each month of vacancy has an immediate impact of almost 10% on annual turnover. As a private person it can also be difficult to follow up on this type of rental property – just listen to the huge range of complaints you hear about ‘landlords’.

At Home Invest Belgium, we recognise that there are important economies of scale when operating a large portfolio. If you had spent your € 260,000 on shares in Home Invest Belgium (ENX: HOMI), your total net income today would be €400,000. A return that is four times higher than the return on your rental apartment.

Landlord with scale

At Home Invest Belgium we have a clear purpose: we want to become the ‘landlord of choice’ of Belgian tenants. At the same time, we want to give everyone the chance to own property – but without the corresponding difficulties.

These two elements of our purpose are inextricably linked. We want to relieve Belgians of the ‘bricks in their stomachs’; renting should be seen as a fully-fledged lifestyle choice, not something you only do while waiting to buy your own house. And by helping to create a stable rental market, we offer an investment that is robust and safe.

There are clear economies of scale when operating a large portfolio. You can offer a much better rental experience because you can spread maintenance and management over many properties.

Our large scale (more than 2,000 rental properties) means we are able to set up our own buildings specifically for rental purposes. In our apartments, you don’t have to park your bike on the balcony and/or put your washing machine in the hallway, as is the case in many rental apartments. We design our buildings with common areas such as a laundry room, shared terraces and meeting rooms, bicycle sheds and even guest rooms.

We build with durable, premium materials because they save us maintenance costs in the long run. Here, too, we differ from the building salesmen who erect buildings with a view to selling them quickly at maximum margins. Our know-how in developing projects allows us to offer a premium apartment, but priced in the mid-range segment. In Brussels, we can thus offer a new, two-room apartment in a reasonable area for less than a thousand euros a month.

And, because we operate in markets where there is a structural housing shortage, such as Brussels, we can keep our vacancy rate very low. Even at the height of the corona crisis, our occupancy rate remained around 95%. Nassim Taleb would call that ‘antifragile’; housing is a basic need, and you can’t really economise on that.

Regulated property company

For the investor, this results in a low-risk share that generates a lot of cash. Most of this cash is also paid out to the investor.

Regulated Real Estate Companies (RRECs), such as Home Invest Belgium, are subject to strict rules and are therefore an exception in the investment sector. In addition to a maximum debt ratio of 65% (currently around 50% at Home Invest Belgium), the law stipulates that RRECs must distribute 80% of their profits to shareholders.

What does the future bring? Our purpose, to become the ‘landlord of choice’ and offer investors a way to invest in property without the corresponding misery, remains our guiding principle. We will redouble our focus on the core: building more apartments, marketing our brand more assertively to consumers, and creating more operational excellence in the organisation. In short: more of the same, but even better.

The Horizon

The four strategic pillars of Home Invest Belgium

What will the future hold for Home Invest Belgium? What does the business strategy look like? It is very easy to summarise.

Home Invest Belgium has a winning formula. And we will continue to use it, but even better.

An anti-fragile product

If the corona crisis taught us one thing, it is this: residential real estate is an “anti-fragile” product. People will always need (rental) housing.

The markets in which Home Invest Belgium is mainly active, such as Brussels, have a structural under-supply of rental properties. This results in a high occupancy rate of our homes, which usually fluctuates around 95%, and which never fell below 94%, even at the height of the corona crisis.

We will therefore focus on rental properties more than ever in these types of markets in the future. We will do this according to four strategic pillars.

Pillar 1: Premium experience and buildings

Because of the way we work and the way we finance ourselves (see: 3x value creation) we can construct high-quality buildings in excellent locations.

Thanks to the high quality of our buildings and our many years of expertise in letting, we can offer a superior experience to our tenants. Today, renting is far too much of a game of chance: you can have a good landlord or a bad one.

And a bad landlord can saddle you with a lot of costs, annoyances and worries. Home Invest Belgium wants to remove that element of opportunity from the rental relationship. One of our central goals is to become Belgium’s landlord of choice.

Renting does not have to be something you do “while waiting” before you buy your own home. It is – especially in the city – a fully valid form of living.

Pillar 2: Affordable

This does not mean we do not let luxury apartments. We are resolutely aiming at the mid-market. For example, we can offer a well-located two-bedroom apartment in Brussels for less than a €1,000 per month.

Affordability and quality are not opposite, by the way. Although our buildings are constructed with better materials than the average owner-occupied apartment, it does not cost us more.

After all, we are not looking at the short-term return on a sale, but at the long-term total cost of ownership of a building: Home Invest Belgium remains the owner of a building for years, and sometimes decades. By ensuring high-value construction quality, we keep the costs of maintenance low and guarantee that a building can generate good rental income for many years.

Pillar 3: 19-99

We said it earlier: renting does not necessarily have to be something you do “while waiting” to buy your own home, it is a fully-fledged form of living. Our mission is to help Belgians get the monkey off the back of both the investor and the tenant.

We want to offer homes that are suitable for all lifestyles and all stages of life. Only then can we become Belgium’s landlord of choice: by making sure we can offer something suitable to everyone and for every phase in life: from first rental home to family apartment, to flat for the old age. In doing so, we are not only providing shelter, we are providing a place to build your life.

Pillar 4: Common areas

Perhaps the biggest annoyance for tenants is this: many apartments are not adapted to modern city life.

Rental homes are often found in older houses that have been renovated into divided floors. This means: narrow stairs, small communal halls, no bicycle shed, little storage space in the apartment.

Just look around the city to see how many bicycles, drying racks and even washing machines you see on balconies. Tenants do not like that, and it is not necessary at all. For most of our buildings, we provide common areas: a bicycle shed, laundry rooms, communal roof terraces, and even workplaces and guest rooms.

We can make these spaces affordable because a block of rental apartments follows a different logic than an owner-occupied apartment – we do not necessarily have to let the largest apartments, but the most comfortable ones.

All these strategic pillars help us to not only be the market leader in our segment, but a reference: a beacon of confidence for the tenant. This is what will ensure we continue to deliver above-average returns in the long run.

The Factory

Value creation at Home Invest Belgium: the rule of three

At Home Invest Belgium, we combine a high return with a young building stock (our buildings are on average less than ten years old), and a high dividend that has been increasing for twenty years.

Analysts and critical investors sometimes wonder: is that a sustainable model? We believe it is, yes! This is the strength of the vertical integration we employ: by doing everything in-house, we create a lot of margin.

And although the rental of homes is, of course, our main source of income, it is not our only source of value creation.

1x Construction

To begin with, we already create value through the development or renovation of our buildings ourselves. This means we can collect the construction margin ourselves instead of passing it on to a developer.

Over the years, Home Invest Belgium has developed a great deal of in-house expertise for the development of rental apartments.

Our real estate therefore differs significantly from apartments being developed for sale; in fact, it must meet specific requirements to be attractive to tenants.

That is to say: an apartment being prepared for rental does not have to be maximised in terms of living area, but in terms of living experience. People buy square meters, but they rent living spaces.

We can significantly enhance the living experience of the tenants by providing common areas: bicycle sheds, washing areas, communal relaxation areas, workplaces and even guest rooms. In an apartment building with apartments being offered for sale, these spaces do not offer a return, and are therefore not built.

We also invest relatively more in materials than builders of owner-occupied apartments. A developer of owner-occupied apartments does not have to carry out maintenance; this risk is passed on to the buyer or community of owners.

Home Invest Belgium remains the owner – so we have every interest in building using high-quality materials, and as a result, the total cost of ownership of our buildings is lower.

2x Letting

We can then market these premium apartments to the mid-market segment (where demand is consistently greater than supply) as being made with high-quality materials.

You can rent a well-located, new-build 2-bedroom apartment in Brussels from Home Invest Belgium for less than €1,000 per month. Our occupancy rate is therefore high – around 95%. Even during the corona crisis, the occupancy rate never dropped below 94%.

3x Value increase

Finally, we achieve a nice added value when we eventually sell the buildings. We carry out an annual review of our real estate portfolio. We sell all the buildings that no longer meet our requirements, and we do so for more than the original cost price.

This is how we achieve the third time added value for our shareholders.

This means we are able to regain liquidity for new investments, keep the average age of our buildings low, and create the opportunity to pay out a nice dividend year after year.

Vertical integration creates a flywheel effect for Home Invest Belgium that allows us to grow stably and sustainably, without taking major financial risks. As such, we can live up to the two parts of our philosophy: to be the consumer’s landlord of choice, and to offer investors a way to invest in real estate – but without the hassle.

The Factory

HIB in a nutshell

As Belgium’s market leader in residential rental properties, we stay close to our core: 89.2% of our portfolio consists of residential real estate. A smaller portion goes to shops (8.0%) and offices (2.8%).

Our portfolio consists of more than 2,000 rental properties spread over Belgium and the Netherlands with a value of €640 million (2020):

  • The Netherlands: 9.4%
  • Flanders: 11.4%
  • Wallonia: 14.0%
  • Brussels: 65.2%

The strong focus on Brussels is a conscious choice. As the capital of Belgium and the European Union, Brussels is the perfect place for the residential real estate market. With 1.2 million inhabitants and an annual population growth of 0.76% (compared to 0.40-0.44% for the rest of Belgium), the city contains a rapidly increasing tenant potential. Moreover, it is a receptive audience: no less than 60% of Brussels residents rent. This can be compared to 30% for the rest of Belgium (2017).

HIB on the stock exchange

We floated on the stock market in 1999 (ENX: HOMI). In doing so, we put the safety of our shareholders first. As a Regulated Real Estate Company, (RREC) we comply with strict rules, and therefore maximise that safety:

  • A maximum debt ratio of 65% (current debt ratio: 50.11%)
  • Minimum 80% of the profit must be distributed in dividends.

For the past 20 years, our dividend growth and value creation has increased every year. HOMI shares bought in 2008 are now worth 5 times more. The current figures (2019) speak for themselves:

  • Net rental result: €25.1 million
  • Occupancy rate: 95.4%
  • Debt ratio: 50.1%
  • Gross yield per share: 4.25%
  • Gross dividend per share: €4.85

Even now, during the corona crisis, residential real estate is a robust core. Housing is and will remain a primary need, which also takes precedence for people, even in turbulent times.