3 stocks for the real estate boom

How will you take advantage of rising property prices?

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Growth in property prices stalled for a few years in the aftermath of the global financial crisis as households and individuals sought to avoid debt and pay of existing loans.

Residential property prices rise if the number of household formations is greater than the number of new dwellings built. However, low interest rates and the ability for SMSFs to invest in property further increase demand for property, both residential and commercial.

1. Tamawood (ASX: TWD) offers exposure to the residential real estate market in Queensland. Tamawood sells designs for houses, and manages their construction. Its activities are not capital-intensive, as the company receives cash upfront. Tamawood also charges fees to affiliated builders for licensing and franchising and  in the last two years has made over 20% of its revenue from installing solar panels and trading renewable energy certificates.

Tamawood has performed well over the last decade. However, the earnings are cyclical, and the share price has climbed over 30% since June. Investors need to be wary of buying such stocks when they are at the top of a cycle. However, for those who think house prices are about to boom, Tamawood is a strong candidate.

2. Mortgage Choice (ASX: MOC) has a recognisable brand and allows would-be borrowers to compare the offerings of over 20 different lenders. As the property market picks up, new borrowers are likely to consider using their services. As house prices increase, so too does the commission earned by Mortgage Choice; this is definitely a stock for a hot real estate market.

Macquarie Group (ASX: MQG) has been increasing its exposure to the domestic mortgage market, and Mortgage Choice is one distributor of its loans. This is good news for the broker, as it benefits from healthy competition between lenders. Macquarie's entry into the domestic mortgage market has encouraged the big four banks to offer discounted rates through mortgage brokers.

Commonwealth Bank (ASX: CBA) is the leader when it comes to domestic mortgages, with over 25% of the market. As has been widely reported, Commonwealth has been selling more mortgages through brokers such as Mortgage Choice. While this hurts the bank's margins, it's good news for the broker. As with Tamawood, the share price of Mortgage Choice is up about 30% since June.

3. Servcorp (ASX: SRV) is a different kind of property play (and one that I prefer, at current prices). The company owns serviced offices throughout the world, and differentiates itself from the competition by providing a high level of service. For example the company can provide receptionists, IT support, VOIP networks and super-fast internet to all its clients.

In particular, Servcorp's success in the short term will depend on the company filling its new offices in the United States. In FY 2013, Servcorp reported an increased profit from mature floors and a decreased loss from immature floors. Motley Fool contributor Peter Andersen covered the company recently in this excellent article. Investors should note that part of Servcorp's improved profit in FY2013 was due to a reduction in the depreciation rate the company uses.

Foolish takeaway

It's always a good idea to think about how long-term trends will impact a company. However, investors should avoid buying into the 'hot' sectors when the hype is high. These three companies are among the best for exposure to real estate, but that doesn't mean you should buy them at current prices.

Are you looking for a stock you can buy at current prices? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading

Motley Fool contributor Claude Walker owns shares in Servcorp. Find him on Twitter @claudedwalker.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »