Is real estate about to rocket again? 2 ASX shares to buy for the comeback

Could the property sector flourish once the Reserve Bank ends the interest rate hike torture?

| More on:
A young family with two kids smiling as they look out the window of an apartment they just bought

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

So after 11 interest rate rises and depressed property prices over the past year, there are signs real estate is making a comeback.

Maybe consumers can see that the rate hikes are about to cease soon. Maybe the Australian obsession with real estate defies rational logic.

Auction clearance rates had been rocketing in autumn, especially in Sydney and Melbourne, where they reached 77.2% and 74.3% respectively last weekend.

For some time the analysts at Market Matters felt like the tide had turned.

"In April, we looked at the Australian property sector, concluding that we felt that value was returning to the sector following its more than 30% correction since January 2022."

What about the mortgage cliff?

To counter the enthusiasm, there has been much conjecture in the media about the looming "mortgage cliff".

This is the phenomenon where all those homeowners and investors who signed ultra-low fixed rate loans back in 2020 would be forcibly switched back to variable in the coming months.

With the record-breaking hikes over the past 13 months, many of them will be dealing with a doubling of their monthly repayments. 

So is the current real estate revival a false dawn?

No, according to Market Matters analysts.

"This issue has been a discussion point in the press for many months… and arguably already factored into many prices," they said in a memo to clients.

"History tells us that markets move ahead of fundamental news and this is starting to look the case with property as auction rates improve."

Their opinion is that there is more upside from here than downside.

"Assuming Australian property has found or is 'looking for a low', the property sector is likely to enjoy a meaningful bounce or more."

Two stocks to ride the real estate comeback

So what are the best ASX shares to buy right now to cash in on this resurgence?

The Market Matters team already holds Goodman Group (ASX: GMG) in its growth portfolio, but is still "long and bullish" on the industrial property manager.

"We do like this $38 billion integrated quality stock which engages in the development, ownership, and management of industrial property and business space," the memo read.

In line with the revival in the broader real estate sector, the Goodman share price has soared 14% year to date.

"The stock is not cheap, trading on a 21.5x valuation for FY23, though we believe it;s warranted as management continues to deliver," read the memo.

"We liked the company's Q3 report handed down two weeks ago, which showed development earnings again edging higher."

Goodman pays out a dividend yield of 1.5%.

If you desire a larger income, the Market Matters team is in favour of picking up Abacus Property Group (ASX: ABP), which is paying out a 7.1% dividend yield.

The office and self-storage property trust dipped 5.8% over the second half of May, presenting a buying opportunity.

The potential of spinning off its Storage King business would "theoretically help the company unlock some decent intrinsic value".

"We like Abacus Property as a cheap, high yielding sleeping giant," read the memo.

"Abacus trades on 14.3x while its larger rival in the self-storage space, National Storage REIT (ASX: NSR) trades on 21.8x. Like many REITs, ABP has been trading at a heavy discount to its asset values, making the move both logical and attractive."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Broker Notes

A female broker in a red jacket whispers in the ear of a man who has a surprised look on his face as she explains which two ASX 200 shares should do well in today's volatile climate
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A wine technician in overalls holds a glass of red wine up to the light and studies is closely with large wine barrels in the background, stored in a brick walled wine cellar.
Broker Notes

2 undervalued ASX 200 shares with 'significant catalysts ahead'

We reveal the ASX 200 coal and wine stocks that this fund manager has selected for additional investment.

Read more »

A female coal miner wearing a white hardhat and orange high-vis vest holds a lump of coal and smiles as the Whitehaven Coal share price rises today
Broker Notes

1 ASX 200 energy stock with 'minimal competition' to buy right now

This stock is trading 30% lower than its 2022 record high.

Read more »

happy investor, share price rise, increase, up
Broker Notes

These ASX 200 shares could rise 25% to 50%

Analysts believe these shares could deliver big returns for investors.

Read more »

a smiling woman sits at her computer at home with a coffee alongside her, as if pleased with her investments.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Resources Shares

Goldman Sachs says this ASX 200 mining share is in for a 33% whack

The top broker predicts a fairly miserable 12 months ahead for this diversified miner.

Read more »

Broker looking at the share price on her laptop with green and red points in the background.
Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »