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INVESTMENT: Reaping Rewards from the Real Estate Rebound
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altConsidering the overwhelming fact that the real estate sector, particularly the US sub-prime mortgage industry, was the straw that broke the proverbial camel’s back and caused the financial crisis in 2007, it is hardly surprising that many investors have been avoiding Real Estate Investment Trusts (REITS) like the plague. But as is always the case when it comes to making money out of investments, the colossal hit that residential and commercial property prices have taken in recent years has made it a perfect place for savvy, long term speculators.  With data coming out of the US and parts of Europe starting to look more encouraging, is now the time to play the property price appreciation game? And if so, how exactly should you play it? This article will hopefully give you some clues.
 
The big comeback looks set to continue 
Anybody who has had their money tied up in real estate, especially the residential sector, from 2006 up until now will be breathing sighs of euphoric relief at the data that is coming out of the US. Amongst the wave of encouraging reports were the announcements made by America’s third biggest homebuilder Lennar Corp. In June this year the firm announced a staggering 53% rise in revenue for the second quarter after orders from clients jumped up tremendously during that period. Lennar’s Chief Executive Stuart Miller told reporters that their “second-quarter results, together with real-time feedback from our field associates, continue to point towards a solid housing recovery”.
 
Data from the public sector is also giving property owners and investors plenty to get excited about. Property Wire summed up the mood in a recent article by saying that:
 
“Analysts at the National Association of Realtors (NAR) are convinced that the U.S. housing market recovery is still going strong, according to its latest tally of total existing home sales. The NAR’s chief economist called the current housing statistics “overwhelmingly positive… Existing home sales are at their highest since November 2009 and have beaten year-ago levels for 23 consecutive months. Experts say the difference between now and the last housing boom is that things are operating under more stringent credit criteria and modest price growth”.
 
Historically speaking at least, the health of the US real estate sector is not only important to US investors. It is very likely that despite the ongoing economic weakness of the eurozone, many property sectors in Europe will see a stronger upward trend as the US housing market and broader economy get back on track. The UK, for instance, has already started to see a recovery in various regional property markets.  
 
altPlay number one: Direct property buying 
Investing directly in property, be it residential, industrial, commercial  or anything else, has been the bread and butter of wealth preservation for a hell of a long time. Whether prices on the whole go up, down or flat in any given country, people will always put their hard earned money into real estate. The key of course is timing.
 
Emerging markets (especially China) aside, there are plenty of great reasons why now is a fantastic time to buy property:
 
•Prices in the western world are still low. On an historic basis, you will struggle to find a better time to be on the buying side of a property transaction than the period of 2008 to the present day. It won’t take long to find bargains in the housing market on either side of the Atlantic.
 
•Mortgage deals are spectacular. Admittedly, banks are no longer lending money to prospective homeowners like it’s going out of fashion. However, if you have a decent credit rating and a large sum to put down on a property (perhaps 20-30%) then the mortgage deals you can find are very borrower-friendly.
 
•Government support for buyers. For those who are not able to pay a large chunk of the property price off from the start, particularly first time buyers, policymakers are trying to stimulate the markets by offering support and incentives to prospective homeowners.
 
•The bottom has PROBABLY already been hit. It is always hard to say convincingly that “the only way is up” with regards to any asset class. But if one thing is for sure, it would take a very big economic disaster to send property prices back to their lowest point of the current financial cycle.
 
Play number two: REITS 
Whilst owning property personally is something almost everybody will strive to do at some point in life, those looking to make a profit on a macro upturn in real estate value can avoid the headaches and charges by putting their money into REITS. The basic premise of these financial instruments is very similar to ETFs, stocks or mutual funds - but with the focus being exclusively on real estate.
 
Some examples of REITS that are popular with investors and are highly rated by analysts are Duke Realty Corp, Liberty Property Trust, W.P.C Carey INC and PS Business Parks.  
 
Play number three: The indirect investment route 
If investing in physical property or funds directly corresponding to real estate doesn’t take your fancy, there are plenty of other options for making a good return from a rebound in bricks and mortar. Owning stocks that are set to benefit greatly from a revival of the US and European property markets could be a great way to make money from more indirect sources.
 
The most obvious equities in this regard are property developing companies. Big homebuilders  such as D.R. Horton in the US and Barrett Homes in Britain should certainly see a good bounce in the coming months and years. Advisory firms, building material suppliers and land owners will also most likely offer a sound return for investors as the recovery gains momentum and the building of new homes increases further.
 
On a final note, it is also definitely worth considering the strong possibility that the biggest beneficiaries of a real estate recovery in the western world could be the banks and other big players in the financial sector, all of which have been hit very hard by the rock bottom property markets of recent years. 
 

by Josh Cooper
 
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