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Should you buy Mirvac shares in a property boom?

Mirvac Group (ASX: MGR) has enjoyed a strong year on the ASX amid the Aussie property boom.

The residential real estate investment trust’s (REIT’s) shares have climbed 48.18% higher this year to $3.26 per share.

Why are Mirvac shares climbing higher this year?

Australia’s monetary policy has been a huge tailwind for Mirvac’s earnings in 2019.

The Reserve Bank of Australia (RBA) has slashed the official cash rate from 1.50% to just 0.75% in the space of a few months.

Many economists are tipping further rate cuts in early 2020, which has seen lenders load up on cheap debt.

Mirvac is heavily invested in residential real estate and the group’s shares have been rocketing higher on the back of the ongoing boom.

With house prices at record highs, and cheap credit on offer, it’s easy to see why the Aussie REIT is well positioned.

Mirvac shares have been carried along for the ride this year and its full-year earnings reflected its current market position.

The group posted a $631 million operating profit with further growth forecast for FY20 back in August.

A strong financial performance landed at the top end of its guidance range and Mirvac increased its dividend by 5% to 11.6 cents per security.

Should you buy into Mirvac?

The tailwinds that we’ve seen so far this year could be reasonably expected to continue into 2020.

Mirvac shares slumped 3.83% lower yesterday as the S&P/ASX 200 (INDEXASX: XJO) erased its gains from the past week or so.

Mirvac is still near the top of its 52-week trading range with a price-to-earnings ratio of 11.8 times.

With a market cap of $12.82 billion, Mirvac is also very much a large cap ASX stock.

However, there are other REITs available that could provide more diversified exposure. If you already own your home (or have a mortgage), then your wealth is probably very concentrated in Aussie property.

An efficient portfolio would suggest diversifying with less correlated assets where possible to boost risk-adjusted returns.

That means a stock that isn’t influenced by the same risk factors (i.e. interest rates) could be a better buy.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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