A major part of Asia's wealth can be attributed to investing in real estate. But as a global pandemic forced the world to adapt, many people are now asking if real estate is still a good investment?
With an increasing number of people working remotely, is commercial real estate in densely-populated cities practical anymore? And as the world continues to be affected by COVID-19, with borders closed and air travel limited, is a second property in North America still desirable for Asia's global families?
Iggy Chong, head of Private Wealth, Greater China at RBC Wealth Management, says the short answer is yes. "Real estate is for everyone," he says, "but what you buy will depend on your level of net worth and your long-term goals."
Current and prospective real estate investors need to carefully consider where they're buying, the type of property and the length of time they plan to hold on to it in order to determine if it's a great deal or not.
There's more to real estate investing than just the buy-and-hold strategy. There are other ways to get a piece of the real estate pie, even if there's no way to tour properties in-person in the current climate.
Real estate cash opportunities for investing
Many think when they buy a house, their money is invested and then they're done. The money is in the deal; on to the next one.
But there are other ways to use that money. Joel Goh, head of Brokerage & Futures for RBC Wealth Management in Hong Kong says, "People want to make the most of their money so they buy real estate as a hedge against inflation." He goes on to explain after the transaction is complete, buyers can take out a line of credit against the property and use it to invest in liquid assets like stocks and bonds.
One strategy Ai Ling Toh, a relationship manager with RBC Wealth Management in Singapore, sees is clients accessing equity in the home they own. By renting out that property, they're already getting a steady stream of rental income. On top of that, owners can mortgage the property and use the available credit line against the new mortgage to invest in other liquid assets.
Commercial and retail real estate holdings may decrease
Even before COVID-19 made remote work a reality for millions of people globally, the number of people working from home was increasing. This has been a growing cost-cutting trend as office space rental costs rise.
Chong says investors are "rethinking investing in office buildings and retail space because retailers increasingly go online. Their mix of real estate holdings may start to change."
But that doesn't mean giving up all real estate. "Residential real estate always has a uniqueness," adds Chong. "Which can help maintain its value."
"It's a hard asset which stores value," adds Goh. Even though property is illiquid, personal residences—be it primary , a second home or vacation property—will always be an important part of an investor's portfolio.
Although interest in existing commercial properties may be in decline, do look for opportunities in new developments, says Goh. There are still many underdeveloped areas and one that's of interest to some in Asia is the Greater Bay Area development in southern China. Not far from Hong Kong, this developing area gives investors the opportunity to get into a real estate development which has potential for great appreciation.
Go digital with real estate investment trusts (REITs)
For the investor who isn't quite sure if they want to invest in physical properties, or may already have some in their portfolio, Goh says real estate investment trusts (REITs) are a popular option.
"Both real estate and REITs have had an upward trend over time, but REITs cover a variety of markets, unlike a house." REIT shares are much like index funds, with shareholders owning part of a large portfolio of real estate holdings when they buy them.
Investing in REITs will also add diversity to an investment portfolio, Toh says, which is important because "this gives you less exposure to risk and volatility in the market."
Consider this before investing in real estate
Toh says investors need to do thorough research before buying in an unfamiliar area. This can include finding a team of professionals who can help acquire the property, facilitate the lending and manage it.
Chong says, "A good private banker should be able to help with the entire process," including making connections to professionals who can help with aspects like understanding tax implications and updating estate plans.
A tip Toh has for investors is to take a serious look at your whole portfolio. Some investors, she says, have far too many accounts and "are not able to see how their assets influence each other, nor get a full breakdown of their wealth because they have so many accounts. They can lose focus on the total portfolio.
Even when real estate is not offering rock-bottom prices, it may still be a worthwhile investment for those who desire to add diversity to their portfolios.
"People are passionate about real estate," says Toh. They'll continue to use it not only as a place for their family to live and vacation, but also give them alternative ways of increasing their investment opportunities and wealth.
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