One of the key drivers in our practice is to consider investments that pay you a good level of income which is predictable. One of the ways we do this – apart from investing in a portfolio of dividend paying stocks – is to consider the merits of investing in the real estate sector via Australian Real Estate Investment Trusts (AREITs).
These investments are particularly suited to people who are looking for a high level of income which is both tax advantaged and relatively predictable. Looking for an investment with these characteristics in times of low interest rates can be difficult.
A few weeks ago the Reserve Bank of Australia reduced the cash rate to 2.5%, the lowest level on record since 1959.
Interestingly, interest rate easing is likely to bolster AREITs in a number of ways:
1. With lower interest rates crimping term deposit and fixed cash returns, investors are trending toward defensive and high yielding investments such as AREITs which are currently yielding around 5.6%pa (as at 31 July 2013).
2. Potential upside for residential developers as low interest rates spur homebuyer activity.
3. The cost of debt reduces which encourages more buyers into the market, thereby stimulating property values which help to underpin AREIT asset values.
As it continues to demonstrate lower risk characteristics and a renewed focus on stable income streams, the AREIT sector is looking attractive.
Speak with one of our advisers to find out the current state of play in this area. And if you’d like to know more, you’re invited to book a free, no obligation consultation to discuss your specific situation and goals. Contact us today to book a time that suits you.