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So after 11 interest rate rises and depressed property prices over the past year, there are signs real estate is making a comeback.
Maybe consumers can see that the rate hikes are about to cease soon. Maybe the Australian obsession with real estate defies rational logic.
Auction clearance rates had been rocketing in autumn, especially in Sydney and Melbourne, where they reached 77.2% and 74.3% respectively last weekend.
For some time the analysts at Market Matters felt like the tide had turned.
“In April, we looked at the Australian property sector, concluding that we felt that value was returning to the sector following its more than 30% correction since January 2022.”
What about the mortgage cliff?
To counter the enthusiasm, there has been much conjecture in the media about the looming “mortgage cliff”.
This is the phenomenon where all those homeowners and investors who signed ultra-low fixed rate loans back in 2020 would be forcibly switched back to variable in the coming months.
With the record-breaking hikes over the past 13 months, many of them will be dealing with a doubling of their monthly repayments.
So is the current real estate revival a false dawn?
No, according to Market Matters analysts.
“This issue has been a discussion point in the press for many months… and arguably already factored into many prices,” they said in a memo to clients.
“History tells us that markets move ahead of fundamental news and this is starting to look the case with property as auction rates improve.”
Their opinion is that there is more upside from here than downside.
“Assuming Australian property has found or is ‘looking for a low’, the property sector is likely to enjoy a meaningful bounce or more.”
Two stocks to ride the real estate comeback
So what are the best ASX shares to buy right now to cash in on this resurgence?
The Market Matters team already holds Goodman Group (ASX: GMG) in its growth portfolio, but is still “long and bullish” on the industrial property manager.
“We do like this $38 billion integrated quality stock which engages in the development, ownership, and management of industrial property and business space,” the memo read.
In line with the revival in the broader real estate sector, the Goodman share price has soared 14% year to date.
“The stock is not cheap, trading on a 21.5x valuation for FY23, though we believe it;s warranted as management continues to deliver,” read the memo.
“We liked the company’s Q3 report handed down two weeks ago, which showed development earnings again edging higher.”
Goodman pays out a dividend yield of 1.5%.
If you desire a larger income, the Market Matters team is in favour of picking up Abacus Property Group (ASX: ABP), which is paying out a 7.1% dividend yield.
The office and self-storage property trust dipped 5.8% over the second half of May, presenting a buying opportunity.
The potential of spinning off its Storage King business would “theoretically help the company unlock some decent intrinsic value”.
“We like Abacus Property as a cheap, high yielding sleeping giant,” read the memo.
“Abacus trades on 14.3x while its larger rival in the self-storage space, National Storage REIT (ASX: NSR) trades on 21.8x. Like many REITs, ABP has been trading at a heavy discount to its asset values, making the move both logical and attractive.”