While the property market in Australia's major cities is starting to show a rebound, here's how a diversified ASX real estate investment trust (REIT) portfolio could outperform an investment property over a 10-year period.
Which REITs are good value at the moment?
The Scentre Group (ASX: SCG) share price has climbed marginally higher so far this year to $3.97 per share but remains in the middle of its 52-week trading range.
I think the Scentre Group share price could be a good buy given its down 7.5% over the past 12 months and could provide great exposure to commercial real estate (CRE) in the Retail sector.
Scentre Group owns and operates 41 Westfield shopping centres around Australia, meaning purchasing Scentre shares is essentially a pure-play on the performance of big domestic retail players.
While the data coming out of the Retail sector has been shaky of late, and short-term growth prospects remain far from outstanding, I think the 5.47% per annum distribution on offer from Scentre Group means it could still have a place in a lazy landlord's portfolio.
By placing a $50,000 investment in Scentre Group shares and reinvesting the dividends for the next 10 years, you could be sitting on a nice nest-egg of $87,040 (if dividends remained unchanged) before accounting for any capital gains.
Similarly, I think the Centuria Metropolitan REIT (ASX: CMA) could be in the buy zone despite already climbing 19.6% higher so far this year.
Centuria provides the portfolio with more balanced CRE exposure given it is effectively a pure-play office REIT and is a high-yield REIT with a 6.24% yearly distribution.
With another $50,000 invested in the Centuria Metropolitan REIT for 10 years, holding all else constant, this principal could grow to $91,600 – meaning the distribution would be worth a handy $5,750 per year before any capital gains.
My final pick for my lazy landlord portfolio would be Mirvac Group (ASX: MGR) to round out the portfolio's exposure to residential real estate.
Residential real estate remains front and centre in Australians investing picture and I think Mirvac remains well-placed to capitalise on any rebound in the property market.
Mirvac offers a lower yield than the other REITs with 3.60% per annum, meaning a $50,000 investment here for 10 years would be worth $71,213 in a decade's time, with a $2,500 dividend by then (assuming it remains unchanged).
Overall, this would mean the portfolio principal, before capital gains, could have risen from $150,000 initially to a hypothetical $250,000 just from reinvesting these constant dividends – a tidy 66.6% return all from reinvesting dividends and the magic of compounding.
The $250,000 diversified portfolio could then be netting a cool $13,000 per annum on top of that return, assuming the conditions held – all without the leverage required to invest in an investment property.
