Listed Real Estate: What Are The Benefits Of REITS For A Property Investor?
All our answers in our Real Estate report: « Is Real Estate Portfolio Diversification Starting To Pay Off? »
With respect to the listed real-estate markets, investors often have two key questions in mind: ‘Is it too late to invest in REITs given the uncertainty over interest rates?’ and ‘What are the benefits of REITs for a property investor?’
Depending on the research source, investment horizon and geography, we could argue that REITs perform similarly to long-term investment-grade bonds. This pattern has become apparent lately amid the zero-interest rate environment. Yet, property stocks can be volatile in the short term, because they do not offer a real means of diversification like common stocks. And returns from private real-estate markets can be higher as well, seen in the UK in recent years. That said, much is determined by the different case studies and general data, but we consider that REITs should be used for property investors seeking international diversification (rather than for so-called multiasset managers owning all major asset classes like shares, bonds, private equity, and so on). For example, today, US real-estate investors may want to increase their exposure to Europe, whereas others may choose to reduce or expand their coverage of the UK (Brexit issues) and/or Asia.
As always, there is a lingering perception that “it is too late to buy and too early to sell”.
There is no doubt that REITs have offered international investors reasonable potential through the real-estate markets. When interest rates rise, REITs tend to be sensitive to stock market volatility in the short term. Investors could strengthen their positions accordingly. In addition, a rosier economic outlook could support underlying property values in the longer run.
We have a neutral recommendation on Continental European REITs. The current accommodative monetary policy remains a key driver. We stay Negative on UK REITs (in spite of soaring share prices in recent months), as share prices may fall to price in future losses in capital values. We keep our neutral recommendation for US and Asian REITs.