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Published April 25, 2011

ASK DR INVEST

How to invest in real estate


Q: I have been working for a few years now and I am very keen to start investing in real estate. Will you be able to provide some advice on this?

A: To start investing in real estate, you can invest in a physical property, or indirectly through other asset classes such as equity and bonds.

An investment in a physical property will often require a relatively high initial capital outlay, and you should consider the following factors including:

# Commercial or residential market

# Location of the property

# For own stay or rental

# Availability of appropriate financing packages such as fixed rate versus floating rate

# Current and future interest rate trends

# Tax implications

While you may enjoy the advantages of investing in a physical property such as leverage, inflation hedge and high rental yields, you must also be mindful that such investments are relatively illiquid, and property prices hinge on the robustness of the economy and government policies. Hence you need to have a long-term view when you invest in property.

An indirect way of investing in real estate could be through other asset classes such as equities and bonds. While bonds issued by property developers will only provide investors with a steady stream of interest coupons, an equity stake allows participation in their profitability across diverse projects. Real estate investment trusts (Reits) are also good ways to achieve diversification and exposure to retail malls and industrial properties. Relative to physical property investment, an equity stake would usually require a lower capital outlay, and any adverse financial impact is limited to the invested amount.

Regardless of your choice, you must be aware of the risks involved and always do your due diligence before you invest.