Invest in Real Estate

Why invest in real estate?

Real estate is often referred to as concrete gold because it generally stands for security and value retention. Investors are always looking for protection against inflation, especially in times when central banks adopt an expansive monetary policy. Low fluctuations in value and attractive distributions, e.g. from rental income, also encourage many investors to invest in real estate.

Real estate investments can offer investors a number of benefits:

  • Returns on capital over the long term.
  • Diversification with respect to traditional asset classes such as stocks and bonds.
  • Income from rental payments, which can be higher than from other asset classes.

Investing in real estate: Benefits
Source: VanEck.

How can I invest wisely in real estate?

Due to the sharp rise in prices on the real estate market, it is virtually impossible for most people to take advantage of this boom by investing directly. A real estate ETF or REITs ETF offers the opportunity to invest even small amounts and affords a significantly higher degree of flexibility compared to a traditional property purchase. They take advantage of easy access to the stock exchange to make investing in a real estate ETF easy, unlike the traditional purchase of a house or apartment, which involves much higher overheads. Purchase price negotiations, notarial certification, land register entry and even searching for tenants are not necessary.

Passive real estate ETFs offer an attractive alternative to mutual funds, which charge higher fees, often tie up the invested capital for long periods and may require an extremely high minimum investment. Real estate ETFs are characterised by higher liquidity, flexibility and lower costs compared to mutual real estate funds.

What do real estate shares invest in?

Real estate shares invest money from investors in listed real estate securities.

Listed real estate securities, or REITs (Real Estate Investment Trusts), include companies that invest primarily in real estate and whose shares are traded on the stock exchange. They are usually exempt from taxes on corporate profits to prevent investors from being taxed twice. By purchasing shares in this kind of company, you acquire part of a real estate portfolio.

How do REITs work?
Source: VanEck.

Publicly traded real estate offers a number of advantages compared to non-publicly traded real estate:

  • Liquidity: Because it is traded on the stock exchange, you can enter and exit at any time when the stock exchange is open and bid and offer prices are offered.
  • Low minimum investment: The minimum investment is very low, equivalent to the price of one share, which is usually in the range of a few tens of euros.
  • Country diversification: Real estate companies usually invest in a specific region. By investing in various real estate companies, you can diversify across various sectors and regions.
  • Sector diversification:Several hundred publicly traded real estate companies exist throughout the world. Thus there are real estate companies that specialise in a sector, for instance:
    • Residential
    • Office buildings
    • Shopping centres
    • Logistics warehouses
    • Factories
    • And many more

Of course there are also risks connected with publicly traded real estate, such as:

  • Market risk: Investments in real estate shares can be negatively influenced by developments in the capital markets, specifically interest rates.
  • Concentration risk: The underlying real estate may be concentrated in specific regions, sectors, or currencies. As a consequence, real estate shares may be sensitive to local economic, market-related, or political developments.
  • Currency risk: The value of an investment can be negatively influenced by exchange rate fluctuations.

Investing in real estate with ETFs

Investors who do not wish to spend their time searching for suitable real estate shares can instead buy shares in an ETF that invests in real estate shares. Large investors or even retail investors can use real estate ETFs to diversify their portfolio and benefit from the potential growth of the real estate market.

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