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Is this the cheapest way to invest in the housing market?

Australia’s housing market has been the subject of much debate over the years.

It’s no secret that we have experienced a significant boom in the housing market and that has made some investors sceptical about the valuation of housing given the high levels of household debt.

This has led to calls for a big short on the big banks Commonwealth Bank of Australia (ASX: CBA)Westpac Banking Corp (ASX: WBC)Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).

Some have gone a step further and looked at potentially shorting mortgage brokers such as Mortgage Choice Limited (ASX: MOC), or lenders mortgage insurers such as Genworth Mortgage Insurance Australia (ASX: GMA), or real estate agents such as Mcgrath Ltd (ASX: MEA).

Since the beginning of September, Mcgrath’s share price has plunged 34% in what could be the canary in the coal mine for property prices.

Despite all this, there are some who are looking to invest into the housing market. After all, each investment must be assessed by its own merits and macro-economic factors alone do not determine what makes a good or a bad investment.

Such investors looking for a cheap way to get into the housing market might want to consider Aveo Group (ASX: AOG) which is one of Australia’s largest owners and developers of retirement living units, with 89 villages and around 11,000 independent-living units and serviced apartments.

Aveo’s business model is to grow by developing retirement units. It developed 62 new units in FY 2015 and 182 in FY 2016, followed by 266 in FY 2017. It plans to deliver over 500 in FY 2018 and beyond.

This is targeted torwards Australia’ growing and ageing population.

Residents can buy their retirement unit either from an existing resident or from Aveo, but they have an obligation on sale to pay a deferred management fee and share of the capital gain to Aveo. Aveo also shares in the capital gains on the retirement units.

Aveo’s business model has received some negative press in recent months which has affected its share price. On current metrics, this appears to have undervalued the company but it remains to be seen what further impact the negative press will have.

The company has a PE ratio of 14 and is in a good financial position with a low cost of debt. It might be an option for those looking to get onto the housing ladder.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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