Patrick Moonen, senior multi asset strategist at ING Investment Management said low bond yields have ‘spurred’ investors to search for assets that offer income and are improving fundamentals, which has boosted demand for real estate investment trusts in the US and elsewhere.
Moonen said the difference between real estate yield and high grade corporate bonds is now 1.8%, which significantly above the 10-year average of 1.2% and offers a ‘reasonable buffer’ against rising interest rates.
Real estate also compares favourably with equities, according to Moonen. As of 31 July, the trailing dividend yield on global REITs stood at 3.95% versus a global equity dividend yield of 2.5%.
“As long as the Fed maintains its monetary policy path and both the ECB and the Bank of Japan keep easing then there is little or no danger for a 2013-like sell-off in global real estate,” Moonen said.
“The current low interest rate environment globally enables real estate companies to finance themselves at historically low yields and fully exploit positive financial leverage while a strengthening economy supports the residential market in the US,” he added.
He also noted the improvement in the US labour market and consumer confidence will impact ‘household formation’ as more young people set up their own homes, which will filter through o benefit the property sector.
