REIT investors be warned, says broker

The Real estate investment trust (REIT) sector has been one of the best-performing sectors over the past few years thanks to lowering interest rates and a strong Australian economy.

Broker Morgan Stanley said to clients in a note that the Australia REIT sector doesn’t look that attractive considering the yield for 10-year bonds has increased so that the difference is now only 1.78%, meaning the yield margin is quite narrow.

Rising interest rates are likely to mean the value of property may fall in the short-to-medium-term, meaning it may not be worth to invest across the whole Australian REIT sector.

However, individual businesses such as Goodman Group (ASX: GMG), DEXUS Property Group (ASX: DXS), Stockland Corporation Ltd (ASX: SGP), Lendlease Group (ASX: LLC) and Charter Hall Group (ASX: CHC) remain attractive to Morgan Stanley.

However, whilst some property businesses may do better than others I am generally avoiding the whole sector. I do not think that most of the above options offer strong income or growth opportunities.

I do have my own favourites in the REIT sector including Rural Funds Group (ASX: RFF), Arena REIT No 1 (ASX: ARF) and National Storage REIT (ASX: NSR). I believe these three REITs are much more likely to be able to continue paying distributions if the economy were to hit a bump.

Foolish takeaway

I do fear that rising interest rates will be more damaging to some property businesses than many investors are currently thinking over the next two to three years. It depends how far the US Fed goes, if it raises its rate to near 3% or higher over the next year or two, property yields will seem less appealing.

That’s why I’d rather go for growth shares like this top ASX stock for my portfolio at this point in the cycle.

Top Australian Stock Picker Just Issued Rare “Double Down” Buy Alert

Discover why this legendary Australian stock-picker just issued a “Double Down” buy alert to his exclusive group of insiders… and why he’s convinced this might be the single most attractive entry point for years to come.

Simply click here to get started and access our secure sign-up page.

Motley Fool contributor Tristan Harrison owns shares of ARENA REIT STAPLED and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia has recommended National Storage REIT. 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!