My Favorite Way to Profit From the International Real Estate Boom
There is a growing and profitable trend happening in the United States. Many investors are unaware it is even happening.
If you read Carla Pasternak's recent article ( found here ), then you know exactly what I'm talking about.
While everyone seems to be talking about the rebound in single-family housing, very few are talking about multi-family housing.
And as Carla has pointed out, that's a mistake.
Carla explains that while the single-family housing recovery has just started, multi-family apartment housing has been in recovery mode for the past several years. In fact, she says the United States could soon become a "Renter Nation."
I completely agree with Carla. Right now, positioning your portfolio to capture dividends and growth from thereal estate recovery makes total sense.
But if you read my articles, then you may know that I always go a step further.
My key takeaways
Diversification , even within the sameasset class , is a key feature of a well-designed portfolio. Within the housing REIT sector, investors would be wise to have positions in single-family home REITs and multi-family apartment REITs.
But this diversification shouldn't stop here.
Having a position in international real estate markets not only mitigates unknown future U.S.-based risk (like a surprise rate hike or direct government intervention) but it can capture profits from the global real estate recovery.
The easing measures of many central banks worldwide, along with slow, but steady global economic growth, are helping the global real estatemarket to bounce back. Not to mention, news that the world's wealthiest man, Carlos Slim, just purchased more than $500 million of residential housing assets from the Spain-based CaixaBank, indicate his bullishness on the real estate recovery.
It looks like the worst is over in the European Union with the EuropeanCentral Bank vowing to do whatever it takes to support the region's struggling nations. Not to mention, news that the world's wealthiest man, Carlos Slim, just purchased more than $500 million of residential housing assets from the Spain-based CaixaBank, indicate his bullishness on the real estate recovery.
Meanwhile, in the world's second-largesteconomy by gross domestic product, China, housing prices advanced last December, ending eight consecutive months of declines. Even in the beat-down real estate market of Dubai, in the United Arab Emirates, there was a 65% increase in the number of real estate transactions in 2012 from 2011.
Add it all together, and all I see is a brighter future for the international real estate market.
The easiest way for investors toprofit from this trend is byinvesting in exchange-tradedfunds ( ETFs ) that track international REITs.
My favorite international REITETF
Despite the mouthful of a name, iShares FTSE EPRA/NAREIT Global Real Estate ex-U.S.Index Fund (Nasdaq: IFGL) , a $1.6 billion REIT ETF, is up 27% in the past 12 months and yields close to 6%. The ETF specializes instocks involved in real estate development and ownership in economically developed countries. The ETF's holdings are most heavilyweighted in China, with 5.25% of assets in Sun Hung Kai Properties, one of that country's largest home developers. Windhaven is the ETF's largest institutional holder.
Technically,shares have been in a steady uptrend since Sept. 1, 2012, but have hit resistance at the $33.50 level. Buying a breakout close above $34 makes solid technical sense. My 12-month target is $36.
Risks to Consider: International REITs, like all REITs, are extremely sensitive to interest-rate fluctuations. International central banks often follow the Federal Reserve's moves. Therefore, shouldthe Fed begin to tighten its economic policy, then foreign banks could follow, hurting returns on international REITs.
Action to Take --> With $579 billion managed by 166 SEC-registered REITs in the United States, there may be a scenario of too muchmoney chasing too few opportunities in the U.S. real estate market. I think there is still muchupside potential in the domestic REIT space, but the marketwill eventually saturate.
This fact combined with the value of diversifying into growing international markets creates a compelling case for international REIT ETFs. I like IFGL on a breakout close above $34 with a 12-month target of $36 and an initial stop at $33.