Whether it is the war in Ukraine, or bottlenecks in Chinese production, inflation has made its return to the daily lives of the French since 2022. Since then, Money sitting in a current account leads to a loss of purchasing power. Your assets are dwindling. To keep it, you need to invest your money intelligently. And why not SCPIs, this stone-and-paper investment, to fight against inflation?
➡️ How often in finance, SCPIs can be a good solution, but only on condition of investing wisely: choosing a good SCPI, and with the right tax envelope. Here we go for the demonstration.
Inflation has returned since 2022
I’ll start by going over the basics.
Inflation corresponds to the rise in prices in general. We can also talk about food inflation, or energy price inflation, when the rise in prices is confined to certain sectors only.
The most commonly used indicator in France to measure inflation is the INSEE consumer price index (CPI). It corresponds to the evolution over time of the price of a standard basket of goods and services (e.g. butter, bread, electricity, gasoline, etc.).
Here is a history of the annual evolution of inflation in France since the year 2000:
As you see, in France we were rather used to having between 0% and 2% inflation over the last twenty years. But since 2022, prices have skyrocketed, particularly the prices of energy, consumer goods, and even construction, with inflation around 5%.
Particularly when it is high, inflation constitutes a crucial element in judging the performance and relevance of a financial investment.
The rate of return minus the inflation rate gives what is called the real interest rate. For example, inflation at 5% and a Livret A rate of return at 3% gives a negative real interest rate of -2%. Concretely, the saver loses purchasing power.
Now that the basis of comparison is established, let’s see how the SCPI returns compare to price developments in France.
SCPI: a distribution rate regularly higher than inflation
SCPIs (Sociétés Civiles de Placement Immobilier) have their own financial jargon. So, the annual return on this investment is called the SCPI distribution rate.
This rate corresponds to the sum of dividend payments over the year for an SCPI share, divided by its price. These dividends are net of management fees, but gross of taxes.
The dividends paid by an SCPI correspond to the rents generated by the real estate held by the company, less management fees.
First, let’s start by seeing if the average distribution rate of SCPIs exceeds inflation or not:
✅ The average distribution rate of SCPIs is almost systematically above the inflation rate in recent years, except for 2022 and 2023 where it is slightly lower.
And even if the average SCPI return of 4.53% in 2022 and 4.52% in 2023 does not beat inflation, this investment still does better than:
- Livret A, whose rate for the year 2022 reaches 1.38%, and 2.92% in 2023. And much lower levels in previous years, since the rate of this livret… is indexed to inflation!
- Euro life insurance funds whose average oscillates between 1% and 3% over the period from 2012 to 2023
Except that… the A booklet is net of taxes, and the euro funds benefit from the advantageous tax regime of life insurance. So let’s see what this gives when we take into account the tax impact on the performance of SCPIs. Will this stone-and-paper investment still do well in the face of inflation?
The taxation of SCPIs: a brake on this barrier to inflation
The taxation of SCPIs held directly can do (very) harm, but fortunately there are solutions.
SCPI held directly: a tax on property income that is often steep!
If you buy SCPI shares for cash, then generally the taxation which applies to the income from your SCPI corresponds to property income, i.e.:
For someone who is at 30% TMI like me, the dividends received from SCPI directly are therefore taxed at 47.2% in total -
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