As the global pandemic continues, we look at changes in real estate markets and things to consider when it comes to property investments.
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.
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.
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.
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.”
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.
The material herein is for informational purposes only and is not directed at, nor intended for distribution to or use by, any person or entity in any country where such distribution or use would be contrary to law or regulation or which would subject Royal Bank of Canada or its subsidiaries or constituent business units (including RBC Wealth Management) to any licensing or registration requirement within such country.
This is not intended to be either a specific offer by any Royal Bank of Canada entity to sell or provide, or a specific invitation to apply for, any particular financial account, product or service. Royal Bank of Canada does not offer accounts, products or services in jurisdictions where it is not permitted to do so, and therefore the RBC Wealth Management business is not available in all countries or markets.
The information contained herein is general in nature and is not intended, and should not be construed, as professional advice or opinion provided to the user, nor as a recommendation of any particular approach. Nothing in this material constitutes legal, accounting or tax advice and you are advised to seek independent legal, tax and accounting advice prior to acting upon anything contained in this material. Interest rates, market conditions, tax and legal rules and other important factors which will be pertinent to your circumstances are subject to change. This material does not purport to be a complete statement of the approaches or steps that may be appropriate for the user, does not take into account the user’s specific investment objectives or risk tolerance and is not intended to be an invitation to effect a securities transaction or to otherwise participate in any investment service.
Royal Bank of Canada disclaims any and all warranties of any kind concerning any information provided in this report.
WARNING: The contents of this material have not been reviewed by The Securities and Futures Commission of Hong Kong or any regulatory authority. Investors are advised to exercise caution in relation to the investment. If you are in doubt about any of the contents of this material, you should obtain independent professional advice.
To the full extent permitted by law neither RBC Wealth Management nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this document or the information contained herein. No matter contained in this material may be reproduced or copied by any means without the prior consent of RBC Wealth Management. RBC Wealth Management is the global brand name to describe the wealth management business of the Royal Bank of Canada and its affiliates and branches, including, RBC Investment Services (Asia) Limited, Royal Bank of Canada, Hong Kong Branch, and the Royal Bank of Canada, Singapore Branch. Additional information available upon request.
Royal Bank of Canada is duly established under the Bank Act (Canada), which provides limited liability for shareholders.
® Registered trademark of Royal Bank of Canada. Used under license. RBC Wealth Management is a registered trademark of Royal Bank of Canada. Used under license. Copyright © Royal Bank of Canada 2020. All rights reserved.
® Registered trademark of Royal Bank of Canada. Used under license. RBC Wealth Management is a registered trademark of Royal Bank of Canada. Used under license. Copyright © Royal Bank of Canada 2024. All rights reserved.
We want to talk about your financial future.