Everyone who owns or is looking to buy property in 2023 for passive income knows that the markets are in a bit of turmoil right now. While that might be great news for some, for many others, buying a property might still be out of reach.
But even if you can't stump up the princely sum it takes to buy a house these days, you can still invest in property for as little as $500 (or even less). How, you might ask? By using ASX shares.
Most ASX shares don't represent investments in property. But some do. And completely so.
The ASX is home to many investments known as real estate investment trusts (REITs). REITs are listed on the share market, but rather than representing investments in a company, they function as a trust, pooling together investors' money to invest in property assets.
These can range from residential housing to commercial real estate to industrial land assets. Think of any commercial property, whether it be high-rise offices, shopping centres or warehouses, chances are there's a REIT that fits the bill.
And just like a landlord receives rent, the owners of the trust receive rental income from these assets. Rental income that can turn into your passive income from the dividend distributions the REIT can pay.
So it might be a great time to think about investing in property this way if you're desperate to get some returns from this corner of the investing world.
Rising interest rates dent ASX real estate valuations
As we touched on earlier, interest rates have been climbing sharply over the past year or so. In fact, last week saw the tenth consecutive month in a row that the Reserve Bank of Australia (RBA) lifted rates.
Rising interest rates are bad news for most assets, but especially property. Higher rates reduce borrowing capacity for everyone, not just households. And if REITs can borrow less, but have to pay higher interest rates, it can really put a dent in the valuations of the properties they own.
A case in point, the value of the Vanguard Australian Property Securities Index ETF (ASX: VAP), which is an exchange-traded fund (ETF) that tracks the value of most of the REITs on the ASX, has fallen by more than 13% over the past 12 months. Compare that to the broader S&P/ASX 200 Index (ASX: XJO), which is down by only 1.48% over the same period.
But this could be a buying opportunity for any investor wishing to get a slice of property in their share portfolios – and the passive income that can come along with it.
Passive rental income from the share market?
Even though rates are rising, property assets are still popular. The era of lockdowns is over. Shops are back open, and immigration is returning to normal. Thus, cash flow from property assets is strong, and will probably get stronger over a longer-term horizon if our population continues to grow and the economy prospers.
This is good news for the likes of Scentre Group (ASX: SCG), the owner of the Westfield-branded shopping centres in Australia. Or Goodman Group (ASX: GMG) with its network of industrial warehouses. Or Stockland Corporation Ltd (ASX: SGP), which owns a range of housing communities and retirement villages.
Lower prices mean higher yields. And right now, the Vanguard Australian Property ETF has a trailing dividend distribution yield of 4.89%. That's a yield that is on the upper end of what you can get from ASX shares right now. It's a lot higher than the dividend yield available on Commonwealth Bank of Australia (ASX: CBA) shares today, for example.
So we could well be in a golden opportunity for ASX-listed property investments. This corner of the market is certainly well worth a look today, in my view. Especially for those seeking passive income from their shares.
