Who are the global real estate investors, what are their strategies and strengths, and why?
Real Estate Investment Strategies and Impact On Other Asset Classes
According to a report by Morgan Stanley Capital International, the global Real Estate investment market was worth $9.6 trillion in 2019.
A look at the average monthly rents worldwide for 2020 shows a glimpse of why investors choose Real Estate for its ability to produce rental income.
Average monthly residential rent in selected markets worldwide, 2020.
“It’s tangible; it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate.” -Donald Trump
Real Estate is considered to be one of the safest investment classes. Stability, growth,and its ability to produce income are among the main reasons that investors include Residential and Commercial Property in their long term portfolios.
Who Are the Global Real Estate Investors?
For clarity, its important to know the key players in the Real Estate sector.
Largest Real Estate REITs and Companies by Total Assets
According to the Sovereign Wealth Fund Institute, the total assets for the top 3 largest Real Estate Investment Trusts (REITs) are –
- Resource Real Estate Opportunity REIT Inc – $1,139.8 billion
- Annaly Capital Management – $96.9 billion
- Medalist Diversified REIT – $82.8 billion
Another way that investors cancan magnify their gains is by investing in companies that manage property assets. By doing so, investors can gain leverage and exposure to superior offers and deals.
According to Forbes, the top 3 largest Real Estate companies are –
- Brookfield Asset Management – $323.9 billion
- American Tower Corporation – $40.7 billion
- Prologis – $55.007 billion
The Real Estate market is a fast-paced and competitive investment sector with many ways to profit. Investors use different methods and strategies to achieve the maximum yield from their seed investment.
Strategies That Real Estate Investors Use
To maximise profit from the property market, key strategies help investors get the most return on investment. Here are some of the proven ways to profit from the housing and commercial property market –
Investing in REITs (Real Estate Investment Trusts)
This option is perfect for investors looking to profit from the Real Estate market without actually buying physical property.
REITs pay dividends and appreciate over time. here have been periods in time when REITs have significantly outperformed stock market indices.
Not only this, but REITs are easier to buy and sell with fewer transaction costs and legal procedures. This makes them more liquid than traditional brick-and-mortar property investments.
Flipping property is purchasing property to renovate and add value to it by improving its overall structural integrity, repainting, landscaping, and remodelling.
“Buy on the fringe and wait. Buy land near a growing city! Buy real estate when other people want to sell. Hold what you buy!” -John Jacob Astor
Once a house has been renovated and refurbished, it is worth a higher price on the property market.
The investor then sells the property and keeps the profit earned from the value-added. The market benefits because the quality and standard of the property have improved. These factors make the flipping of property a great overall strategy for adding value to the Real Estate space.
long term Hold
The simplest strategy that Real Estate investors use to profit off the increase in its valuation is buying and holding it for a long term period. Due to factors like inflation and increased demand, the value of a property has shown a steep uptrend in recent history.
The buy-and-hold strategy requires patience and the viability of capital to remain committed for extended periods.
While the appreciation of value in Real Estate does take longer tenures, it is the stability, and comparative safety of the asset class is what makes this strategy viable.
“Owning a home is a keystone of wealth…both financial affluence and emotional security.” -Suze Orman
Leasing or Renting (Sublet)
A benefit of Real Estate is its ability to generate regular income.
The property investor may choose to either sublet their property to another party to earn monthly income or give out the property on lease.
Rental income is a major attraction to purchasing Real Estate is that it can generate reliable, regular income. It has proven itself as an asset that can hold value well over-time and stay fairly resistant to extreme market volatility.
Resources Required to Succeed with These Strategies
For those looking to establish themselves in Real Estate, some strategies must be put in place to maximum gain and get the most out of one’s investment.
Land is in high demand because every human needs a place to stay and live. Due to the high demand for land, the prices per square foot have steadily increased in recent history.
To finance Real Estate investments, a good credit score is essential to obtaining a low interest loan from a bank or financial institution.
Government Registration and Transaction Costs
While investing in property, there are certain legal obligations like registration and taxes to be paid. There are also certain limitations to investing in Real Estate.
For example, the transaction costs are often higher, with more legal procedures than other asset classes. In India, the registration of the property is regulated by the Real Estate Regulatory Authority (RERA).
Impact on the Investment Space as Compared to Other Asset Classes
Real Estate is relatively more consistent than other asset classes for building wealth.
Research also shows that investing in property is comparatively safer and performs better over-time as a hedge against inflation.
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” – Franklin D. Roosevelt
While many stocks do pay dividends, rental income is often significantly greater and more frequent.
The limitation of Real Estate is that it is less liquid, less transparent, and has higher transaction costs when compared to equity securities traded on public Exchanges.
Retail and Institutional Investors Moving Into Real Estate
According to a press-release by Grand View Research, the size of the Real Estate market is projected to reach $4,263.7 billion by 2025. This indicates that investors are still positive about future market performance and the potential for continued growth in the Real Estate market.
According to the United Nations, the world’s population is expected to increase by 2 billion persons in the next 30 years, from 7.7 billion currently to 9.7 billion in 2050.
While some individuals claim the property sector is in a bubble, statistical indicators show that demand continues to rise while the availability of land only becomes more scarce with a rising population. This formula adds up to continued rising prices in the Real Estate market for the foreseeable future.
“The major fortunes in America have been made in land.” -John D. Rockefeller
Real Estate has constantly performed well in times of recession and economic crisis. Since housing is a basic need, investors tend to hold even during market volatility. Reports show that amid the persisting COVID-19 pandemic, growth has slowed while some regions are showing signs of contraction.
However, the recovery has been rapid and promising for more upside.
During periods of crisis, risk-averse investors tend to pull out of higher-risk investments and move into safe-havens. Real Estate has proven itself consistently over time to be a safe haven asset. Regardless of economic status, families need a place to live.
Property fulfils the basic needs for a human being – shelter and safety. Businesses rely on commercial spaces to conduct their businesses. For these reasons, investors will always have an interest in personal and commercial housing due to continued rising demand.
Real Estate is one of the most lucrative investment opportunities, but it is not a get-rich-quick scheme. Rather, the largest and best investors in this space use specific investment strategies that provide consistent results over the long term.
Strategies like buy-and-hold, investing in REITs, and property flipping mean that there are plenty of opportunities for investments in the space. While Real Estate does have its own sets of regulations and limitations, clearly this sector also has bright prospects for extended growth in the future.