Forget Physical Property. Buy These 3 Businesses to Gain Safer Exposure to Real Estate
Throngs of people swarming into a condominium show flat is a pretty common sight here in Singapore. Many locals are enamoured with physical real estate as the last 30 years of nation-building progress has seen the value of property rise at an impressive clip. As a result, many people have become very wealthy by investing in properties.
However, I must caution you on two aspects. One is that the economic miracle Singapore went through in the last three decades may not be easily replicated in the next 20-30 years, as the economic, political, and social conditions that created the last miracle may not be present. The other factor is that real estate investments involve a heavy debt commitment on the part of the investor, as that person would have to borrow a significant sum of money in order to purchase a condominium unit.
Here are three businesses you can buy in order to gain exposure to real estate, and you need not take up a ton of debt in the process.
1. APAC Realty Ltd
APAC Realty Ltd (SGX: CLN) is a leading real estate services provider and holds the exclusive ERA master franchise rights for 17 countries in Asia-Pacific. ERA Realty is one of Singapore’s largest real estate agencies with more than 6,800 salespeople. The group also operates training courses and programmes for real estate professionals and undertakes property valuation work on behalf of its clients.
APAC Realty acts as a direct proxy for real estate transactions in Singapore, as it is one of the largest agencies handling real estate transactions for clients. The firm’s fortunes are tagged to real estate transaction volumes, and investors can enjoy a slice of the profit from the large crowds thronging the showrooms.
2. CapitaLand Limited
CapitaLand Limited (SGX: C31) is a diversified real estate group. CapitaLand manages a global portfolio worth S$129.1 billion as of 30 June 2019, and this portfolio spans diversified real estate classes including commercial, retail, industrial, business park, and residential. The group has a presence in more than 200 cities in over 30 countries.
What better way for an investor to gain exposure to real estate than to own a piece of a diversified real estate developer and owner of multiple property sub-types? Investors who own shares in CapitaLand get to share in a slice of the development revenue and profit and are also diversifying their real estate exposure through the group to many countries around the world. This is a lower-risk allocation of capital than to sink most of one’s money into just one property.
3. Frasers Centrepoint Trust
Frasers Centrepoint Trust (SGX: J69U) is a leading retail REIT whose portfolio comprises seven suburban malls located in established residential townships around Singapore. The REIT has a diversified tenant base covering a wide variety of trade sectors.
Owning a REIT is an effective way to enjoy real estate rental income exposure without actually owning the physical property, as the REIT bundles properties together (in a tax-efficient manner) and then lists them on a securities exchange. Investors who buy into a REIT such as FCT can enjoy exposure to a specific property class (retail malls, in this case) and also enjoy steady, consistent income from locked-in leases from stable tenants. This is a much less risky to way enjoy rental income than owning and leasing out a single property.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of CapitaLand Limited and Frasers Centrepoint Trust. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.