Australia's REITs Strong Against Stock Market Crunch

Australian stocks tumbled 3.2 per cent on Tuesday, marking the biggest daily fall since June 2016.

Australia's REITs only fell 2.6 per cent in comparison, holding steady against a wall of selling from the US.

Real estate investment trusts are often seen as susceptible to rising bond yields, as investors typically hold them for a steady dividend yield rather than capital growth.

Rising bond yields late last week in the US were responsible initially for the sell-off. The sell-off in US bonds will strike fear into institutional investors exiting listed property sector as the year progresses.

However, the share market dive prompted investors to flee back to the safety of bonds causing yields to fall, providing support for Australian property trusts.

Some of those hit hardest included developer Lendlease dropping 2.9 per cent, mall owner Scentre down by 3.2 per cent and residential developer Stockland losing 3.2 per cent.

Some experts believe that the market fall will present a buying opportunity especially as property trusts had low gearing and provided investors with an income stream.

Related reading: 2018 Expected to be Strong Year for Australian REITs

Michael Doble, chief executive of real estate securities at APN Property Group, told The Australian that the sector was now “pretty good value” with an attractive yield, and said that the sector was behaving as expected by falling less than the market.

"We expect bond market volatility to be an ongoing theme over the balance of 2018," Shaw and Partners senior analyst Peter Zuk said.

"One thing that is clear is that the likelihood of yields retracing 2016 lows is highly improbable, with risk of rising yields the more plausible scenario."

BIS Oxford Economics’ analysis suggests that the long run of extraordinary returns from the property market is coming to an end as rising interest rates eat into yields and prices soften.

Frank Gelber BIS Oxford Economics’ head of property said the changed conditions would mean the main driver of property prices and returns for investors shifted from yield to leasing conditions and growth.

Gelber believes that bond rates have further to rise and that will have an impact on property yields.

This week marks the start of the REIT reporting season.