A real estate investment worth knowing
La "SCPI européenne".
It's a company that owns buildings in Europe outside of France and rents them out. In 2023, there are some fifteen European SCPIs whose shares can be bought and sold.
If you're already financially independent, this type of investment will passively earn a 4% net annual return on your capital, without eating into it.
If you're building up your assets, European SCPIs are a good complement to the stock market, especially when financed with a mortgage.
It's an investment that suits everyone, except French residents already holding 1.3m euros in real estate.
What is a European SCPI?
An SCPI (société civile de placement immobilier) is a company incorporated under French law that invests in a large number of premises. These are usually business premises, not residential ones, as returns are higher. Shares of SCPIs can be bought and sold. To collect rents, no need to lift a single finger. Just a little paperwork at subscription time.
SCPIs are a benchmark investment in France, regulated by the AMF. They have been around since the 60s, and now boast more than 80 billion in capitalization - equivalent to that of UBS or BNP Paribas.
Most SCPIs invest in properties located in France.
Some invest in properties in the rest of Europe: these are called European SCPIs. Today their share is 20% of total capitalization. They're on a roll thanks to much more attractive after-tax returns. Why is this? Because they are more tax-efficient and offer a better risk/return ratio from diversification across multiple European countries.
There's a false belief that investing in these French law-governed European SCPIs is only possible if you're French. It's little known, but no need to be French or a French resident if you meet 2 simple conditions.
Some examples of European SCPIs
Here are a few examples of benchmark European SCPIs from reputable, long-established management companies:
Corum Origin by management company Corum Asset Management
Corum Eurion by management company Corum Asset Management
Sofidy Europe Invest by management company Sofidy
Coeur d'Europe by management company Sogenial
Epargne Pierre Europe by management company Atland Voisin
4% net return while preserving your capital
For most European SCPIs, the dividend paid for every 100 euros invested is over 4.5 euros (4.5%).
You'll often see much higher figures, because management companies communicate dividend amounts gross of tax: that's rental income minus their management fees.
Before you receive the dividends, the European SCPI pays on your behalf all foreign taxes (of the country where the buildings are located).
| European SCPI |
Return net of foreign taxes in 2023* |
|---|---|
| Corum Origin |
4.9% |
| Corum Eurion |
4.4% |
| Sofidy Europe Invest | 4.3% |
| Coeur d'Europe | 5.2% |
| Epargne Pierre Europe | 5.7% |
Finally, this amount is not taxed directly in your country of residence (France or Switzerland). Instead, it slightly increases your average income tax rate. The equivalent tax percentage on the rent is (M-m)*R/(R+L), where: R is your income subject to income tax, L your rent from European SCPIs, m your average income tax rate, M your marginal income tax rate. In practice, this ratio rarely exceeds 10%.
Every 100 euros invested in a European SCPI will give you 4 euros a year net of all costs and taxes (4%).
In addition, the price of SCPI shares is regulated by the AMF and must be within 10% of asset replacement value. This ensures that the share price follows the value of the underlying real estate.
Last, in practice, there are two other (indirect) costs that you need to be aware of, but which won't impact the above reasoning: the period of use and the resale commissions.
A good complement to the stock market, especially on mortgage
Hypothetical operation: 500k euros invested, of which 200k in cash and 300k mortgage over 20 years at 3% interest rate. Net rent of 4%, so zero cash flow in year 1. Sale in year 15 with early repayment, 10% sales commission and 17% capital gains tax.
Investing in European SCPIs with a mortgage is less risky than investing in the stock market: to lose money, the price would need to fall by more than 35% over the 15-year period, which is extremely unlikely.
Moreover, you are better protected from inflation: as rental prices are indexed on inflation, the return net of inflation (and taxes) on the operation is generally stable - at around 4.5%. Over the same period, the median return on the stock market is 6%, but:
with a 5% probability of being negative (-2% in the worst 15-year period since 1871),
15% probability of being less than 2%
and a 35% probability that it will be less than 4.5%
6.8% median return net of inflation, so about 6% net of inflation and taxes. Source: lazyportfolioetf.com
A highly defensive portfolio of 50% stocks and 50% European SCPIs gives an average return net of inflation (and tax) of 5%, with less variability than the stock market and protection against inflation.
What's more, if European SCPIs are held rather than sold, you can boost returns by an additional 0.5 ppt by avoiding sales commissions and capital gains tax.
An investment that can suit (almost) everyone
The drawback of real estate for French residents or holders of French real estate is the Impôt sur la Fortune Immobilière (IFI). Any household that holds more than 1.3m euros of assets in real estate (net of debt) becomes liable for this tax.
For non-French residents, only French real estate is encompassed. European SCPIs (by definition non-French) are therefore exempt from any IFI, and the return calculations above are valid.
For French residents, all real estate (French and foreign) is included. If you own your main residence, investing in SCPIs and avoiding l'IFI becomes tricky. L'IFI being around 1% a year, the above returns are reduced by 1ppt, which makes the choice of adding European SCPIs to a stock market portfolio much less obvious.
Last, and this is little known: European SCPIs also have inheritance benefits for French expatriates living abroad temporarily.
About the author
Hello, you can call me Margot.
I'm a French expatriate living in Switzerland. I've been investing for 15 years.
With assets in the low millions, I'll probably never have a family office, so I have to stay in the driving seat. How can I grow my assets further and pass them on to my children?
AskMargot is my testimonial, that of a peer, to go further in wealth management.
You'll find unique content, more advanced than what you'll find on beginner investment blogs or in the wealth reports of French or Swiss asset managers.
Don't hesitate to contact me if you'd like to discuss your wealth strategy with a peer.
Recent articles for French residents and expatriates
