Institutional vs. private investors: Which investors move the real estate market
Institutional investors manage ever increasing wealth, while private investors continue to try to generate returns via savings accounts or current accounts. Investments in alternative tangible assets, such as real estate, are more promising. In this area, however, private investors often lack the necessary expertise and/or liquidity, which is why institutional investors are in demand as asset managers. Find out what differences there are between private and institutional investors and why the two segments are slowly converging.
The assets managed by institutional investors in Germany are steadily increasing. According to data from BVI yearbook 2022 Institutionally managed assets in this country have risen by over 140% over the past ten years.
According to BVI, the reasons for this huge increase are sustained zero or negative interest rates, rising real estate prices and, most recently, high inflation and strongly fluctuating share prices. These factors are causing private investors to be uncertain. Money in the savings account or current account - the most used “investment forms” by Germans - hasn't yielded any returns for years. In contrast, alternative tangible assets, such as real estate, recorded high increases in value.
Institutional investors: What does this actually mean?
There is no fixed definition of the term institutional investor, but different explanations of terms. According to the Deutsche Bundesbank are referred to as institutional investors “institutions that are active on the capital market in addition to private investors (retail investors).” that Securities Trading Act (WpHG) generally describes institutional investors as professional clients who have sufficient experience, knowledge and expertise to make valid investment decisions and to be able to adequately assess the associated risks.
The legal form of institutional investors is just as inconsistent as the definition. For example, they can manage the assets of wealthy families as family offices, manage fixed assets for a specific purpose in the form of foundations, or process the funded, company pension plans of companies as pension funds.
Despite a lack of precise definition, institutional investors have a few things in common:
- In contrast to most private investors, institutional investors manage not only their own assets, but also third-party funds.
- Institutional investors may require financial knowledge, economic experience and decision-making skills.
- Institutional investors invest significantly higher amounts than retail investors. They do this while protecting the economic interests of the investors.
- Institutional investors generally have access to almost all capital markets and financial instruments.
- Through their extensive capital resources, institutional investors have a major influence on the price and price development of tangible assets such as realty or stocks and are therefore a formative economic factor for the financial sector.
Real estate: differences between private and institutional
However, the financial world has changed drastically over the past decade. Due to the ongoing period of low and zero interest rates, private and institutional investors were forced to restructure their portfolios in order to achieve significant returns.
In this context, “concrete gold” has gained considerable importance. That's how they show Results of a survey among private investorsthat just under 60 percent consider real estate to be a sensible investment for wealth creation. Real estate is also considered a particularly stable asset class in times of high inflation.
The picture among institutional investors is similar to that of international study From this year shows: According to this, 59 percent of the institutional investors surveyed stated that they had realigned their portfolio in anticipation of further interest rate hikes. Real estate, private equity and infrastructure are therefore the winners. Here, 71 percent stated that they regard these assets as effective instruments for inflation hedging.
Despite the common return target of both investor groups, their starting position differs. For private investors, real estate often serves as a status symbol, own home or for retirement provision. As a result, houses or condominiums are not assessed objectively enough before they are purchased. For example when choosing a location or object. While retail investors often make their buying decisions emotionally because they think they know the environment and their market opportunities well, professional investors have a more rational approach. When making their investment decision, they take into account a current study This includes the macro situation, the technical state of the property, demographic development, return prospects and certifications such as ESG standards.
A real estate investment usually only makes sense if a complete list of criteria is applied to an investment property and a thorough analysis is carried out. However, private investors often do not have the necessary expertise or data material and are guided by emotional buying motives. In addition, the still low interest rates also mean enormous competition with (institutional) investors, which is why purchase decisions often have to be made under great time pressure.
Private investors are therefore faced with a dilemma: On the one hand, real estate is and will remain a sensible and attractive portfolio component. On the other hand, competition is growing, including foreign investors, who dominate the market with well-stocked coffers, expertise and comprehensive analysis tools and make it difficult for private real estate buyers to buy.
Invest like the pros: Digital tangible assets make it possible
However, for retail investors who are considering real estate not as their own home but as an investment property, there is an attractive alternative: digital real estate shares. Here, office, residential or holiday properties selected by experts are “pieced” into digital shares, which are securely displayed and traded on the blockchain in the form of smart contracts. This approach has several advantages for investors:
- Each object is analyzed by a FINEXITY team of experts.
- Investments starting at €500 are possible, which is why investors can also diversify investments in several tangible assets or real estate properties.
- Regardless of the duration of the project, investors can offer their digital shares for sale on the secondary market at any time and benefit from the performance of their investment.
The bottom line is that thanks to digital shares, private investors and institutional investors alike benefit from real estate market opportunities — with full flexibility and low entry barriers.
