Property, the ultimate investment

To many people, owning property is the ultimate investment.

Their measurement of wealth is the number of landed property that they own. I’m sure you have met such people.

Property, of course, is an excellent investment tool. There is no denying that. It all boils down to location, location and location (or, as my friend Cheah Sin Chong is saying in The Star nowdays, the new mantra is “location, concept, timing and branding”). If you are lucky enough to buy into property that is located right, jackpot! Just watch its value appreciate.

The first property that most people buy is usually their first home. Beyond that, additional properties purchased are either for investment or speculation. Sometimes, it is difficult to draw a line between the two.

But before you invest in property, you’d better have a clear idea of what you are getting into. You have to know matters like property investment strategies, the power of leverage and the return on your investment. Plus, all the practical problems that go with being a landlord. The average man-in-the-street does not have this knowledge. And sorry, I do not know most of them too.

So where does that leave you or me, if you want to be a property investor but do not know where to begin? One solution – make friends with professionals in the property business, such as property valuers, property auctioneers, property brokers, etc.

But if you don’t know anyone, the next best solution is to invest in property companies that are listed in Bursa Malaysia. There are plenty to choose from, so take your pick. There are also the REITs that are listed in Bursa Malaysia. Not too many choices presently, but they are there. You can read what I’ve written earlier about REITs here.

Now, if I were you, I’d try something else too … mutual funds that go global. It is the current rage with unit trust companies. More and more of them are jumping in to offer investors the opportunity to invest globally, either in equities or properties.

Where global property funds are concerned, what happens is that your investment is fed into a fund that invests in REITs and property securities around the world. Such funds are designed with a special focus on yield and they endeavour to distribute income on a quarterly basis.

Let me tell you why I believe in global property funds.

First, global property is a growing investment asset class and you tap into a growing international REITs market. If you invest in Malaysia alone, you are missing out on about 99.9% of investment opportunities in the rest of the world. Our local market is only that big.

Second, global REITs have historically offered yields higher than stock dividends. The annualized total return is about 15% over the past 10 years. Rental revenues are distributed to the investors, so the fund is a good source of income.

Third, diversification of your investment portfolio. Global property tends to have low correlation with equity and bond investments, meaning, they are not wholly affected by the rise and fall of the equity and bond markets. Having said this, I still have to remind you that REITs are after all, listed on their respective bourses and their value do go up or down in tandem with the bourse’s performance. But the income stream does cushion the up and down effect to an extent.

Fourth, the advantage of global property funds over brick-and-mortar properties is in their high liquidity. It is so much easier and faster to get in and out of global property funds than to buy and sell actual properties. Besides, it requires a smaller capital outlay. Not only that – you do not have to worry about government taxes or lawyer’s fees.

Fifth, you enjoy the expertise of global property investment managers. They are the ones with their ears to the ground so they know best when to shift in and out of certain global property markets.

Disclaimer: you are advised to read and understand the prospectus from the unit trust companies before investing. Past performance of any fund must not be taken as an indication of its future performance. When in doubt, go find out more!

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