Invest a portion of your portfolio in Global real estate. This may sound really silly considering the “sub-prime” crisis that is going on now in the US. But remember this is a problem mainly affecting the US.Agree that it has international impact since many financial institutions have invested in the derivative securities such as CDOs in the US. However this affects only those institutions and not the local real estate in each country. Thats why it makes sense to grab a few foreign real estate stocks while they are cheap now. How much you need to invest depends on your portfolio size and risk tolerance. Anything like 2-5% of your portfolio should be enough.
Real estate has always been a part of long-term investor’s portfolio because they provide diversification and also boost the portfolio’s yield with their high dividends.
The “sub-prime” mortgage crisis is uniquely an American situation. Unlike the US, it is not that easy for anyone to get a mortgage loan in many countries. In Germany, UK etc. one has provide all kinds of documentation and wait at least a month or two before a loan is approved. Banks in those countries actually verify all the details provided by the applicant.Ninja (No Income No Job or Assets) loans are unthinkable in those countries. Similarly in countries like Singapore, Malaysia, India, Brazil etc. it is difficult to get a mortgage easily even when the applicant qualifies. Its true that UK is affected more than any other European country by this sub-prime crisis, but that is because in UK a few “bad apple” institutions gave loans to people who cannot afford a big loan.
Another factor that supports the argument for investing in international real estate stocks is that the real estate market is holding up well in many countries such as the UK,Singapore, Malaysia etc. In UK for example, the London property prices has hardly fallen more than 2% due to high demand for housing in the city.UK’s strict land preservation laws also contribute to the supply of new dwellings since developers cannot acquire huge tracts of land for development.
In Singapore, though the property market is red hot the government there has announced recently that it will not interfere or take actions to cool it down.Being a small island nation, there is always a high demand for housing especially in sought after areas. Same is true in Malaysia as well. Cities like Kuala Lumpur, Singapore are dotted with sky high cranes building the next apartment tower.
India and China are a different story. Property prices in both the countries have gone through the past few years particularly in major cities with many speculators playing the market.
With that introduction about property markets in a few countries, let’s look at a few options to invest in foreign countries. There are many choices available to US investors. Some of them are listed below:
a. ETFs:
1. SPDR DJ Wilshire International Real Estate ETF – RWX
This has assets of over $1.1B and gives a yield of 3.27%. Has some 6.2% of portfolio in Singapore, 21% in Australia, 7% in Canada and many other countries.
2. WisdomTree International Real Estate Fund – DRW
This is a small fund with $52M in assets and has an yield of 4.06%.
b.Mutual Funds
1. ING Global Real Estate Fund – IGLAX
2. Fidelity Internation Real Estate Fund – FIREX
3. Cohen International Realy – IRFAX
and many more.
-David
