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Why I Am Staying Away From Real Estate Stocks & REITs

Covid-19 has affected us in many ways.

In fact, this pandemic has altered the way I viewed real estate as an investment and REITs.

To be precise, I'm looking at local listed real estate and REITs companies since my primary strategy for investing in such a sector is for dividends.

Below are 3 reasons that I'm staying away from this sector for the time being.

1. The world has yet to fully open up their economies to tourists.

Despite that Pfizer and BioNTech had found a vaccine with 95% success rate with no serious side effects, it will take a year or two for most countries to have access to the vaccine.

More in the article here.

From what I understand, the vaccine is targeted to provide for vulnerable individuals first. That would mean that the rest of us will need to wait a while longer. On top of that, it usually takes a few months (sometimes years) for the vaccine to scale up in production.

In Singapore, the tourism industry contributes about 4% of our local Gross Domestic Product (GDP). However, the butterfly effect is huge in my opinion.

That brings me to the next point.

2. Most of our local real estate companies have difficulties sustaining revenue.

From what I observe, many companies are struggling during this period.

  • Retail sectors had been hit badly. Partly due to the closing of borders, partly due to the lockdown, and largely due to online purchases.

  • Office sectors had also been hit since MOM encourages us to work from home whenever possible. Most companies that are careful enough will subscribe to the philosophy and ask their employees to work from home.

  • Hospitality, needless to say, is in the doldrums.

  • Industrials are somewhat affected since most countries are looking inwards to create their own production lines.

  • The sectors that are still probably surviving are logistics and data centres.

Then, wouldn't it be a good time to look into logistics and data centres? Since they are at a low now and the upside is likely to be huge.

True, but I would say that...

3. There are better opportunities for your money out there.

If the upside is what we are looking at, then I think there are other more obvious and attractive sectors with a long tailwind.

As of now, I'm eyeing (and have always been) the tech sectors. My friend asked me last night if the tech sector was in a bubble given the high valuation and huge runup.

I agree. Yet, the tech stocks continue to defy gravity and soar higher.

Is it a good time to invest in tech sectors then?

Yes and no.

I think the tech sector is likely to have a correction due soon. Just that I don't have a crystal ball to know how much more upside it can go before there is a correction.

(My definition of a correction is between 10 to 15%.)

However, if your time horizon is 5 years or longer, then I think the upside from the tech sector far outweighs the 4 or 10% dividends you may be receiving from the real estate sector.

Disclaimer: I'm a big tech bull so my post is definitely skewed towards that. Caveat emptor.

P.S: If volatility is not something you are comfortable with, then the real estate sector could be a potential sector you can consider. And I would be very careful and selective of the companies I put in my portfolio.

I came across a FB post which I thought was quite interesting about our local retail malls scene.

Mr. Chow here was spot on in terms of anchor tenants. Looks like the shifts in local malls are coming sooner than expected.

Invest with caution people! 2021 is going to be another volatile and exciting year!

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