Stock vs Real Estate

Stocks or Real Estate?  How About Both?  

 

When it comes to investing there is no one way to do invest.  From an extensive list of asset classes to various styles of investing; many investors have their own unique ideas on how to grow their money.  In fact, a popular argument amongst investors is between investing in the stock market vs investing in real estate.  With the introduction of REITs in the Philippines, it is now easier than ever to invest in both stocks AND REITs.  So why not just invest in both?

 

Interested in REIT investing with BDO Securities?  Click here to read our article on how to get started!

 

What is a Real Estate Investment Trust (REIT)?

 

A Real Estate Investment Trust (REIT) is a company principally organized for owning income-generating real estate assets.  In the Philippines, REITs allow investors to buy shares of a company with a portfolio of real estate assets.  These REITs trade on the Philippine Stock Exchange and are readily available for investors to buy and sell just like stocks (Note that BDO Securities investors do need to create a Name on Central Depository Account NoCD to invest in REITs).

 

Invest in Real Estate without the hassle of being a landlord.

 

Let’s face it, owning real estate isn’t always an easy job.  If you own rental properties, a lot of time and energy can go into managing tenants, building maintenance, real estate loans, and more.  By investing in REITs, you gain exposure to income-generating real estate, but without all the hassle that comes with being a landlord.

 

How to earn with REITs?

 

Dividends

 

By law, REITs must distribute at least 90% of their distributable income to shareholders.  Because REITs must distribute income, they can be seen as income-generating assets.  In fact, as of June 3rd, 2021, you can see below that REITs trading on the Philippine Stock Exchange have an average dividend yield of 2.82%. 

 

Average Yield
PH 1-yr Bond 1.76%
PSEi Dividend 1.86%
REITs Dividend 2.82%

 

 

 

 

Comparing the REIT dividend with the Philippine Stock Exchange Index (PSEi) dividend rate of 1.86% and the Philippine 1-yr bond rate of 1.76%, you can see that REIT income can be higher than other asset classes.

 

Capital appreciation

 

Dividend income is not the only way to earn with REITs; the value of the money you invest can also grow.  Just like the price of a stock that pays dividends can grow in value, a REIT price can grow in value.  If you sell your REIT shares for more than you pay, this is capital appreciation.

 

REITs are more liquid

 

From finding the right property, to closing the deal, it can take months to purchase a piece of physical real estate.  This is also true when you sell a piece of real estate.  REITs, on the other hand, are as liquid as stocks.  You can buy and sell shares of REITs in one day and they provide much quicker access to money and hence are more liquid than owning physical real estate.

 

Pseudo-preferred shares

 

Preferred shares of stock can pay dividends on a regular and more stable basis than common shares of stock.  Because REITs are obligated to pay out at least 90% of their distributable earnings, they can also experience a stable dividend payment to investors.

 

REITs can be a great way to gain exposure to real estate without the hassles owning physical property.  They also provide dividend income, potential capital appreciation, and they are highly liquid.  With REIT investing available on the Philippine Stock Exchange, it is no longer a question of whether you should buy stocks or real estate; the question is now, “Why not invest in both?”

 

 

Read additional articles on REIT investing with BDO Securities!

How to Subscribe to REITs

How to Create a NoCD account