FAQs / KNOWLEDGE CENTRE
Real estate is a low to medium risk investment whereby investors can be comforted by the physical nature of investing in real property.
Real estate is advantageous to investors because it results in a high income yield and is not volatile in pricing. Volatility, however, is higher in listed real estate investments than in direct real estate ownership. Direct real estate provides investors with cash flow from steady rental payments, high capital growth during project stage and steady capital growth after the normalisation of the operation.
Investors who would benefit greatly from real estate would include:
- Insurance and institutional investors
- Pension funds
- Sovereign wealth funds
Adjustment to Inflation
Real estate income (rent) has the potential to adjust to inflation increments as rents can be increased when the lease agreement is due to be renewed or the lease can contain provisions for rental increases due to inflation.
Due to the stable nature of rental payments, real estate offers investors the advantage of consistently regular income. Due to the stable nature of rental returns, the larger part of long term real estate returns are likely to come through the form of rental income, which is protected under rental contract.
Low correlation to other assets
Due to its low correlation with other asset classes, real estate investments, as part of an overall portfolio, assist in the achievement of steady capital growth and income in a diversified investment portfolio. This results in an overall reduction of the portfolios volatility.
Direct Investments :
- Investors directly purchase the asset
- Pension funds
- Investment funds are now purchasing large scale investments such as offices and shopping centres, giving investors the chance to partake in investments that may normally be out of their reach.
- Direct investments enable higher diversification
Listed Real Estate :
- Each investor holds units in a trust or fund that invests in a wide range of real estate by pooling the money of multiple investors.
- These are called Real Estate Investment Trusts (REIT) and allow people to invest in residential, commercial and industrial assets, which is often hard to do directly due to their value.
- Syndicates are a type of fund that invests in a small number of assets and investors then buy partial shares with other investors.
- Through hybrid funds investors are able to obtain holdings in real estate securities while being a part owner of direct real estate (via a syndicate or institutional fund)
Recent history has indicated that for long term investments the highest returns are obtained from shopping centres and prime residential real estate.
Infrastructure investments are vital to a country’s affluence and economic development. Due to the high costs of these developments, governments are often finding it hard to pay for this critical infrastructure. For this reason the private sector is moving in to construct, own and manage these types of investments.
There are two main types of infrastructure investments, these include:
- Social infrastructure, which includes schools, affordable housing and hospitals.
- Economic infrastructure, which includes roads, communication, sewage, water, airports and power.
- Monopolistic characteristics
- Built-in consumer demand and defensive characteristics which may help to lower volatility in an overall portfolio
- Generally provides a higher yield than equities
- Option of listed or unlisted investments
- Predictable income
- Ability to invest in a growing asset class
- Inflation-linked returns
The team at Intelligent Capital came from extensive experience in commercial and residential investments. Investors who specifically want to include this sector in their portfolio will greatly benefit from the management that has specialization in property investment and development.
Often used as a synonym for shares. Represents part-ownership of a company, as distinct from debt securities such as bonds and debentures.
Security for which the return when held to maturity is fixed. Fixed interest securities normally receive periodic interest payments and repayment of principal at maturity.
Managed funds pool the money of individual investors. The combined capital is invested by a professional fund manager, in some cases being applied across a range of asset classes such as shares, bonds, property and infrastructure assets.
Managed funds are popular with investors as they make it easy to invest. One transaction can provide access to a range of underlying investments and to diversify your investment across different asset classes and market sectors. They also provide access to investments that may otherwise be out of reach.
When you invest in a managed fund, you are allocated a number of shares or units in the fund. Each share or unit represents an equal portion of the fund’s value. You may receive regular payments – called dividends or distributions – from the fund, based on the profit or income it receives from the underlying investments.
Investing in a managed funds allows you to explore a wide range of assets that may not have been individually accessible to you. The way it works is, you invest a portion of money along with other investors and the overall ‘pool’ is managed by the investment fund. Managed funds take the stress out of investing as an experienced financial investment manager buys and sells assets based on their experience and knowledge of the market.