Which real estate ASX shares should you buy now as interest rates top out?

A young couple stands next to a real estate agent in an empty apartment they are inspectingA young couple stands next to a real estate agent in an empty apartment they are inspecting

Many experts are thinking that the Reserve Bank of Australia (RBA) might put a stop to interest rate hikes in the near future.

After ten consecutive months of torture for consumers and businesses alike, a Finder survey earlier this month showed 55% of economists thought the RBA would hold its cash rate next month.

“We are likely nearing the end of this rate rise cycle,” said Mortgage Choice economist Anthony Waldron.

Over the last few days, with banks in the US failing and Credit Suisse Group AG (SWX: CSGN) in Europe looking wobbly, the odds of interest rates topping out have firmed even more.

Naturally, when interest rates stop rising, the real estate market breathes a sigh of relief.

Shaw and Partners portfolio manager James Gerrish recently took a look at three popular real estate sector ASX shares to determine whether he would buy into them.

‘Long and bullish’

Goodman Group (ASX: GMG), as an industrial property group, was a huge COVID-19 beneficiary as e-commerce clients sought warehousing space to fulfil higher demand.

However, the share price has cooled off to the tune of 27.6% since the end of 2021. Goodman Group closed Friday at $18.98.

Gerrish noted in a Market Matters Q&A that the stock has an estimated forward price-to-earnings ratio of 21.2 and dividend yield of 1.4%.

“We remain long and bullish Goodman Group in our flagship growth portfolio, with an initial target ~$22, over 10% higher.”

Shares for commercial property outfit Charter Hall Group (ASX: CHC), after falling 22% over the past year, finished Friday at $11.77.

Ths stock has an estimate of 13.75 PE ratio and 3.1% dividend yield, according to Gerrish.

“We like Charter Hall under $13 as an ‘accumulate into weakness’.”

Dexus Property Group (ASX: DXS) is best known for its office real estate holdings, which suffered during the pandemic as workers worked from home. The share price is down almost 40% from its pre-COVID high.

The end of lockdowns doesn’t seem to have helped either, with the stock plunging more than 25% over the last 12 months.

Dexus shares closed Friday at $7.84.

“We remain long and bullish in the Market Matters active income portfolio with February’s strong report reinforcing this outlook,” said Gerrish.

“Our initial target is ~$9.50, around 10% higher.”

According to Gerrish’s team, Dexus is forecast to hit a PE ratio of 13.1 and pay out a tidy dividend yield of 6.1%.

Gerrish reckons that the RBA is “too positive in its assumptions around the health of the Australian economy” and thus “too hawkish”.

“Rates, in our view, will not reach the height that markets are currently pricing in, so the headwind on valuations from sharply higher yields may ease.”

The post Which real estate ASX shares should you buy now as interest rates top out? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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