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Here’s why property could be a long term opportunity for investors

The sentiment around investing in property has deteriorated over the last couple of years and for good reason. Australian property prices have grown at rates far above long term averages leading to concerns that we might be in a property bubble.

The fact that a lot of properties are owned by highly leveraged investors at a time when interest rates are at all time lows but likely to increase sooner rather than later, is also a cause for concern.

This is compounded by the fact that property is currently providing investors with lower yields (consistent with lower interest rates and the recent run up in prices).

Despite that, I think there is one factor that could create an opportunity for long term investors in property: technology.

At a time when technology is disrupting many established business models (I’m looking at you Amazon.com, Inc. (NASDAQ: AMZN) and JB Hi-Fi Limited (ASX: JBH)), I think property will prove to be fairly resistant to disruption.

Of course, there will be technologies such as the Nest smart home device created by Google (Alphabet Inc Class C (NASDAQ: GOOG)) that will enhance properties but it won’t disrupt the investment thesis for properties. 

That’s why I think investors who are more concerned about wealth preservation as opposed to growth will continue to look for property investments to anchor their portfolios.

Of course, not all properties will do well and only investments in the best quality assets will do well over the long run.

Here are a few ways of identifying potentially good properties:

High moat assets

Companies such as Auckland International Airport Limited (ASX: AIA) are virtual monopolies and have no close competitors which give them a moat. 

Discounted assets

REITs such as Vicinity Centres Re Ltd (ASX: VCX) and Investa Office Fund (ASX: IOF) have recently been trading at a discount to their net asset value and so there could be an opportunity there. 

Index funds

Index funds would be my preferred way of capturing the overall market performance. I particularly like Vanguard’s property ETF V300APROP/ETF (ASX:VAP) for its low fees. 

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Motley Fool contributor Kevin Gandiya owns shares of Alphabet (C shares).

You can follow Kevin on Twitter @KevinGandiya.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (C shares) and Amazon. The Motley Fool Australia has recommended Amazon. 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 Scott Phillips.

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