Share prices of the largest Australian real estate investment trusts (A-REITs) have had a mixed bag of results this week as the Australian property market continues in freefall.
Shares in Scentre Group (ASX: SCG) and Stockland Corporation Ltd (ASX: SGP) and Vicinity Centres Re Ltd (ASX: VCX) fell by 1-2% this week whilst fellow A-REIT GPT Group (ASX: GPT) rose 1.2% in a shortened trading week.
What's driving the volatile share prices?
Losses in residential property markets across Sydney and Melbourne have now exceeded levels seen in the GFC property downturn and things are unlikely to improve anytime soon.
The major banks are set to tighten their lending in the face of regulatory intervention from APRA and the fallout from the Royal Commission beginning in earnest next week. There are fears this could see a credit crunch exacerbate already over-leveraged households with record household debt-to-income ratios and slowing wage growth creating somewhat of a perfect storm.
Perhaps the biggest question mark remains over Mirvac Group (ASX: MGR) which closed broadly flat at $2.40 per share this week. Mirvac has significant exposure to the Australian residential real estate market through its apartment building developments and its earnings could be hit hard in the case of an apartment downturn.
So where should I put my money?
At this point in the cycle, I think it's hard to make a case that the A-REIT sector or real estate, in general, has a lot of growth left to go. I'd be turning towards non-cyclical or countercyclical stocks such as Wesfarmers Limited (ASX: WES) or Seven Group Holdings Ltd (ASX: SVW), while Alumina Limited (ASX: AWC) might be worth a look for yield-seeking Fools.
