The Reserve Bank of Australia (RBA) is set to raise its benchmark interest rate by as much as 0.50% when it meets tomorrow, in ongoing attempts to bring down inflation. The real estate sector is among those that tend to be sensitive to interest rate changes. Let’s take a look at ASX REIT shares Charter Hall Group (ASX:CHC), Centuria Industrial REIT (ASX:CIP), HomeCo Daily Needs REIT (ASX:HDN) to see where they stand ahead of the RBA rate hike.
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How do increasing interest rates impact real estate shares?
The coming RBA rate increase would be the central bank’s sixth consecutive hike as it works to tame inflation. The real estate sector has so far reacted negatively to the past rate hikes. The S&P/ASX200 A-REIT (XPJ) index has declined around 11% over the past month, and has dropped more than 30% year-to-date.
Increasing rates can pose challenges to REITs such as higher borrowing costs and depressed property values. While business may be better for real estate companies when interest rates are falling, rising rates don’t necessarily always lead to poor REIT returns on the share market. Let’s dive into analysts’ favourite ASX REIT shares ahead of the RBA rate action.
Charter Hall Group share price target indicates 35% upside potential
Charter Hall Group is a heavily diversified real estate property fund manager. Its portfolio funds focus on areas such as office, residential, retail, and industrial real estate markets.
According to TipRanks’ analyst rating consensus, Charter Hall Group stock is a Strong Buy based on seven Buys versus two Holds. The average Charter Hall Group share price target of AU$15.49 implies over 35% upside potential.
Centuria Industrial REIT share price prediction signals over 36% upside
Centuria is a specialised real estate company, focusing purely on industrial properties across Australia. According to TipRanks’ analyst rating consensus, Centuria Industrial REIT stock is a Strong Buy based on six Buys versus two Holds. The average Centuria Industrial REIT share price prediction of AU$3.51 implies over 36% upside potential.
HomeCo Daily Needs REIT share price forecast hints at over 32% upside
HomeCo provides real-estate spaces to retail, lifestyle, health, and other convenience-based businesses. According to TipRanks’ analyst rating consensus, HomeCo Daily Needs REIT stock is a Strong Buy based on six Buys versus two Holds. The average HomeCo share price forecast of AU$1.50 suggests over 32% upside potential.
Concluding remarks
In rough markets, investors tend to seek opportunities in sectors that can bring stability to their portfolios. Although not necessarily recession-proof, resilient real estate stocks can still prove to be a favourite amongst investors during uncertain times.
