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3 Ways To Gain Exposure To Real Estate Through The Stock Exchange

It is no secret that Singaporeans love to invest in properties. And who can blame them? Over the past decade, Singapore’s property market has skyrocketed. A growing economy, scarce land supply and low-interest rates have resulted in increasing demand for property. These in turn have propelled prices of property in Singapore to among the most expensive in the world.

Investors who had purchased property a few decades ago would likely have made a killing. However, despite its marvellous track record, there are limitations to investing in property in Singapore.

For one, investors require a large capital outlay. There are also additional stamp duties for permanent residents and Singaporeans buying their second property. Additionally, property is an illiquid asset that can take months or even years to sell.

I thought it might be useful to introduce three types of investments that investors can take advantage of to gain exposure to real estate without the limitations and expenses of purchasing an actual property.

Real estate investment trusts

Perhaps the most popular alternative to property is real estate investment trusts (REITs). REITs are trusts that pool investors’ money to invest in a diversified portfolio of properties. The properties are rented out, providing REITs with regular and stable income, which in turn is distributed back to its unitholders. In Singapore, the 40-odd REITs (and stapled trusts) currently sport an attractive yield of between 4% and 11%.

In addition to the high yield, investors can also stand to gain when REITs’ prices appreciate as the value of their portfolios increase over time.

With so many REITs and stapled trusts in the market, investors have a plethora of options to choose from. Many of the REITs have assets outside of Singapore and can provide international exposure. There are also different classes of REITs that investors can choose from, such as healthcare, retail, industrial, commercial, or residential. To know more about investing in REITs, you can check out the complete guide here.

Real estate management and development stocks

Besides REITs, investors can also invest in real estate development and management companies listed in Singapore. These companies develop land here or overseas and make money through the sale of the developed properties.

Notably, there are three property development companies that are constituents of the Straits Times Index (SGX: ^STI)City Development Limited (SGX: C09), CapitaLand Limited (SGX: C31) and UOL Group Limited (SGX: U14).

Besides real estate development, many of these property development companies also own their own portfolio of investment properties, which they keep for regular rental income. Some also manage REITs and earn their keep based on a REITs’ performances. Therefore, if the REITs do well, so too do these real estate management stocks.

Real estate brokerage companies

Within the last year, two of the largest real estate brokerage companies in Singapore went public. They are APAC Realty Ltd (SGX: CLN), which operates through the ERA brand, and PropNex Ltd (SGX: OYY), the company with the most real estate agents in Singapore.

Both these companies earn money largely through brokering real estate deals. The larger and bigger the transactions, the higher their revenue and income.

Therefore, when property prices rise, these two companies stand to gain. In the first half of the year, both these companies posted double-digit earnings gains due to the early optimism surrounding the Singapore property market.

The Foolish bottom line

With so many options in the stock market, savvy investors who wish to gain exposure to real estate need not fork out large amounts of capital to purchase an investment property anymore.

Property stocks and REITs offer similar exposure to the real estate market but with added benefits. When investing in those instruments, investors need not fret about stamp duties, maintenance costs or actively managing their properties.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't owns shares in any companies mentioned.