Real estate offers a safer investment option, says study

AS THE Covid-19 pandemic triggers extraordinary volatility in global financial markets, real estate may be a good option for yield-seeking investors looking to hedge against risks, said real estate insider Amanda Carpo.

Carpo, the co-founder of Manilabased KMC Solutions Inc, which provides private offices, co-working space and staff leasing, said real estate still had strong potential to give its investors good returns no matter the macroeconomic backdrop.

“Real estate investment is a good idea to diversify your investment portfolio. Equities are much more volatile and carry more risk in general, and real estate can help manage volatility and risk and make your investments more efficient,” Carpo said in a statement.

“More than ever, investors need to understand the effects of volatility. That is what we will be experiencing in the near future,” she said.

A survey by UK-based global public opinion and data company YouGov Plc recently ranked real estate as the third safest investment next to gold and certificates of deposit.

Carpo said such confidence came with good reason. “Property gives owners flexibility on how to earn – it is not just about buying or selling. Investors can remodel or renovate for rentals or for lease among many other options.”

Federal Reserve Bank of San Francisco senior policy adviser Oscar Jorda has said real estate was historically a better investment than stocks.

In a research paper titled The Rate of Return on Everything, 1870-2015, which tracked historical data spanning over a century, Jorda said residential real estate generally delivered better returns than equity at lower volatility and lower correlation to the performance of stocks in the market.

Carpo said: “These days, it is hard to look at the performance of the stock market and not want to pull your money out. When you pull your money out however, you cement your losses.

“It’s important to stay invested, it’s important to diversify, and real estate can be a good defensive play. There will be economic recovery once society can open up again, and that will happen eventually,” she said.

Carpo said real estate in the Philippines is becoming one of the more resilient sectors in the economy despite the Covid-19 health crisis. Sustained real demand for housing from local and foreign workers in the country could keep the residential space market afloat given favourable demographics.

“Condominiums have an advantage over other real estate as developers situate their properties in areas where demand is already strong. This, partnered with the attractive amenities and potential for market appreciation, add to their appeal,” said Carpo.

She added that condominium owners could fit their properties to leverage off special industries such as co-living arrangements as well as the strong and steady market for student housing.

“At K MC Solut ions we bel ieve there will be sectors of the real estate market t hat wi l l feel t he pa i n of Covid-19 more than others, such as hotel, hospita lit y and reta il. Industria l, logistics, off ice and residentia l will be better of f.

“In terms of office space, which is the sector we are in, companies that are now forced to work from home will need to look into distributed workforce and business continuity planning,” she said.

Global companies that are cutting costs will turn to business process out sou rc i ng ( BPO) ser v ices a nd automation, which ca n indicate a good economic turn for the Philippines, she said.

“We believe t he Phi lippines has consistent ly proven its va lue over time and more companies will adopt to outsourcing a nd work ing wit h remote teams. We experienced this when we sta r ted t he company, in t he face of t he 2008 g loba l recession,” said Carpo.

While the current market situation is causing uncertainty, Carpo said investors must be proactive with their assets.

With real estate, this could mean flexibility – adjusting to current demand – while anticipating opportunities for healthier returns as soon as the market bounces back, she stressed.

“KMC has always tried to provide beautiful and healthy workspaces. Companies will be forced to re-think their spaces for safety and sanitation for the safety of their employees, but this will likely be a long-term trend toward spaces that are now more than ever focused on health, wellbeing and productivity.

“We could see changes in design as the way we live, work and interact will be changed by this virus. The underlying value is that health is wealth,” she said.