Many ASX sectors, such as ASX gold shares, tech shares and retail shares, have delivered strong returns over the past year or so. As such, many investors may be wondering where to look for buying opportunities.
Well, some analysts have identified ASX property shares, including real estate investment trusts (REITs), as a sector that could offer great value right now.
It has certainly been a rough period for the real estate sector, largely because of high interest rates. The cost of debt has been a headwind for operating profits, while residential and commercial property prices have been impacted too. This has led to the share prices of numerous businesses in the property sector suffering declines over the past few years.
Let's look at where some investors are seeing opportunities.
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Expert views on the real estate sector
According to reporting by the Australian Financial Review, Amy Pham, a portfolio manager at Pengana Capital Group Ltd (ASX: PCG), explained earlier this month why real estate stocks are so appealing:
We are very excited because we think that there are a few things that are going to work in terms of making the REIT sector more attractive.
On a risk-adjusted basis, REITs are looking really cheap compared to global equities and general equities. We're entering a rate-cutting phase, all of that is going to help with the valuation of REITs and make them more attractive.
There are a few turning points for us. If you position your portfolio, if you've done your research, you can generate alphas. This is the time.
We know that valuations have bottomed because the 10-year bond has stabilised, but operationally what we are looking out for is for [leasing] incentives to go down and also for vacancy to fall.
But for Pham, the interest rate reduction is not the only catalyst for some property businesses. Companies involved in residential development could benefit from helpful conditions such as strong population growth, low unemployment, and a shortage of housing.
Which ASX property shares are exciting options?
Some of the businesses in the Pengana High Conviction Property Securities Fund include Goodman Group (ASX: GMG), Ingenia Communities Group (ASX: INA), Mirvac Group (ASX: MGR), Scentre Group (ASX: SCG), and Stockland Corporation Ltd (ASX: SGP).
Pham explained why the portfolio has been positioned in this direction:
The way we have positioned the portfolio is that we are very favourable to the residential themes.
But we're not positioning the portfolio based on a rate cut – we're not economists. There are structural drivers for sustainable growth and a rate cut will be just a bonus.
The AFR also reported on comments from Citi analyst Howard Penny that some major property businesses may provide commentary during this reporting season on the "foundations being put in place for growth into 2025 and 2026".
Penny also suggested that while there may be some laggards in the sector, other companies may provide "upside surprises".
For Citi, it's stocks like Goodman, National Storage REIT (ASX: NSR), Ingenia, Scentre, and Stockland that could benefit in an "improving macro backdrop".
