There has always seemed to be an asset debate of investment property versus shares. Investment properties sure have had a great decade or two!
But, the tide seems to be turning and now credit is much harder to access for new borrowers. But, that doesn’t mean you can’t invest in property-related shares on the ASX.
Real estate investment trusts (REITs) can be a way to access property investments on the share market. There are also businesses listed on the ASX that are entirely related to property, and I’m not just talking about the banks.
Here are two ideas:
REA Group Limited (ASX: REA)
REA Group is the owner of Australia’s leading property website, realestate.com.au. It also owns other leading sites such as realcommercial.com.au and flatmates.com.au.
Realestate.com.au attracts the most potential buyers, which attracts the most sellers – a very beneficial cycle which keeps REA Group at the top. It also means the company can increase the prices periodically with little detrimental effect because of how small the advertising fee is compared to the overall selling fee including the agent’s fee.
Strong brand power like this is what delivers market-beating compounding over the long-term.
REA Group also has a number of investments in overseas property sites in Asia and the US which could turn into large profitable businesses in the future.
The property market is currently in a slow decline, but this should mean the property spends more time on REA Group’s website, meaning more advertising revenue per property.
It’s currently trading at 32x FY19’s estimated earnings.
DuluxGroup Limited (ASX: DLX)
DuluxGroup is the owner of several home improvement brands including Dulux, British Paints, Selleys, Cabot’s and Yates.
Many of its products are fairly low-cost items, so it shouldn’t suffer as much during a property downturn as other property-related activities.
The number of properties and households continues to grow in Australia, which means a bigger addressable market for DuluxGroup. It has been a slow-and-steady grower at an attractive price over the past few years.
It’s currently trading at 20x FY19’s estimated earnings with a grossed-up dividend yield of 5%.
Both shares are much better propositions than an investment property at the moment, particularly because property prices are heading down.
REA Group is a bit expensive, but it should be a good long-term investment. DuluxGroup might offer a good combination of dividends and capital growth at the current price.
Another quality share that looks likely to steamroll investment property returns is this top ASX stock which is expected to deliver 30% profit growth this reporting season.
You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group 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 Scott Phillips.