Owning a property over the last 15 years has been a great investment for people who have followed the Australian dream. Over the long term I expect property will continue to grow at a decent rate, however in the short to medium term the picture doesn't look rosy.
With rising interest rates, the tightening of lending terms by banks, curbs to foreign investors, an oversupply of apartments over the next two years, and all-time lows of first home buyers entering the market, the list of negatives is getting bigger.
Potential property buyers might feel a fear of missing out (FOMO to the teen investors out there), but have no fear, there are at least these three investments which could have you profiting from property without owning one:
REA Group Limited (ASX: REA)
This property website company has a market capitalisation of $7.4 billion. It owns Australian sites such as Realestate.com.au, Realcommercial.com.au and Flatmates.com.au.
It also has a big growing presence overseas with its 20% stake in Move Inc. which has the third biggest property site in the USA. It owns iProperty which is a leading site in many South East Asia countries and it just announced a 14.7% stake in Proptiger. It is one of the top three property sites in India.
It's creating a global network of property sites, which is fuelling excellent growth. In FY16 it grew revenue by 20%, earnings per share by 16% and the dividend by 16%.
I think REA Group is not only one of the best property-related stocks on the ASX, but one of the best stocks overall. It's currently trading at 30.3x FY17's estimated earnings with a grossed up dividend yield of 2.09%.
DuluxGroup Limited (ASX: DLX)
Dulux is the paint giant with a market capitalisation of $2.3 billion. It's the owner of many brands including Dulux, British Paints, Selleys, Yates and Cabot's.
Paint is used in every type of property in every situation. If you're trying to sell your house you will probably paint it. If you've just bought a house and you don't like the colour, you'll probably paint it. Doing a makeover or renovation of your house? You'll probably paint it.
Whether property prices are strong or not, paint will keep being used. If an automated robot painter comes along, it will still need paint.
Dulux's financials paint a good picture too, in FY16 it grew revenue by 1.7%, net profit after tax by 15.6% and the dividend by 6.7%. It has been a solid, reliable performer that has kept chugging along in recent years.
It's currently trading at 17.3x FY17's estimated earnings with a grossed up dividend yield of 5.73%.
Reece Ltd (ASX: REH)
Reece is a nationwide bathroom supplier and has a market capitalisation of $4.3 billion. In six years the share price has grown by 137% thanks to Australia's obsession with renovating and construction, everyone wants a nice bathroom after all.
It's grown its store network to 577 and is steadily making its way towards 600. In FY16 it grew revenue by 9.2%, net profit after tax by 16.1% and its dividend by 21.1%.
Reece is trading at 22.4x FY16's earnings with a grossed up dividend yield of 3.04%.
Foolish takeaway
I think all three of these stocks are good alternatives to investment properties. REA Group has many years of growth ahead in my opinion, while Dulux could be a strong income stock. If you want a business with international growth plans like REA Group but a dividend yield like Dulux, you shouldn't miss out on investing in this stock.
