Key Reasons To Invest In Real Estate

Tangible Asset Class

Unlike stocks and, to some extent, bonds, an investment in real estate is backed by a high level of brick and mortar. This helps reduce the principal-agent conflict, or the extent to which the interest of the investor is dependent on the integrity and competence of managers and debtors. Even real estate investment trusts (REITs), which are listed real estate securities, often have regulations that mandate a minimum percentage of profits be paid out as dividends.


Attractive and Stable Income Return

A key feature of real estate investment is the significant proportion of total return, accruing from rental income over the long term. This helps reduce volatility as investments that rely more on income return, tend to be less volatile than those that rely more on capital value return. 

Real estate is also attractive when compared with more traditional sources of income return. The asset class typically trades at a yield premium.


Portfolio Diversification

Another benefit of investing in real estate is its diversification potential. Real estate has a low, and in some cases, negative, correlation with other major asset classes. This means the addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.


Inflation Hedging

The inflation hedging capability of real estate, stems from the positive relationship between GDP growth and demand for real estate. As economies expand, the demand for real estate drives rents higher and this, in turn, translates into higher capital values. Therefore, real estate tends to maintain the purchasing power of capital, by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure, in the form of capital appreciation.


The Bottom Line

Real estate is a distinct asset class that is simple to understand and can enhance the risk and return profile of an investor's portfolio. On its own, real estate offers competitive risk-adjusted returns, with less principal-agent conflict and attractive income streams. It can also enhance a portfolio, by lowering volatility through diversification.

The Greenwich
Seletar Road
S$ 800,000
The Arts House at The Old Parliament
Food & Beverage
Old Parliament Lane
S$ 30,000 / month
Number One Building
Light Industrial (B1)
Ubi Crescent
S$ 620,000
188 Bukit Batok West Avenue 6
HDB Apartment
Bukit Batok West Avenue 6
S$ 399,000
agent image
agency logo
Guinn Cheong
Senior Associate Director
CEA Licence No.:
L3009250K / R008180B
+(65) 9128 1555