Key takeaways
- Real estate stocks give you exposure to the property market without having to invest directly in property.
- REITs (real estate investment trusts) are one of the most popular property-based stocks.
- Real estate stocks won't necessarily go up when property prices do.
Invest in real estate ETFs
An ETF, or exchange-traded fund, is a bundle of securities that track a specific stock sector or market index.
Real estate ETFs track REITs and indexes for the real estate market. Instead of purchasing a single stock, ETFs offer access to a collection of stocks in a specific stock market sector, providing more comprehensive exposure.
Like stocks, ETFs can be bought and sold through a brokerage account. When you purchase an ETF, you pay an expense ratio: an annual cost expressed as a percentage of the funds invested and can range from 0.03% to 2.5%.
A popular ETF in the real estate sector is SPDR Dow Jones Global Select Real Estate Fund (DJRE)
What are real estate stocks?
The real estate sector consists of stocks from companies that own, develop and manage properties.
The Global Industry Classification Standard defines 11 stock sectors, each characterised by a specific industry or slice of the market.
The real estate sector can be further broken down into residential, commercial and industrial real estate.
Some real estate companies and trusts specialise in buying only one type of property while others manage multiple segments of the sector.
Finder survey: What do Australians invest in outside of super?
| Response | |
|---|---|
| None of the above | 40.09% |
| Stocks | 39.21% |
| Exchange-traded funds (ETFs) | 18.95% |
| Cryptocurrency | 12.49% |
| Property | 12.4% |
| Collectables (e.g. cards, sneakers or designer goods) | 5.5% |
| Gold | 5.5% |
| Managed funds (unlisted) | 5.15% |
| Forex | 3.41% |
| Contract for differences (CFDs) | 1.66% |
| Other | 1.4% |
Ways to invest in real estate sector stocks
The real estate sector is dominated by real-estate investment trusts (REITs).
These pull the resources of investors together to buy a range of property assets, which the trust then manages for a profit. In most instances, they generate most of their income through rent, returning the majority back to shareholders through dividend payments.
REITs are publicly traded trusts that are bought and sold like stocks.
They offer the opportunity to participate in real estate an Australian investor might otherwise not have access to, like shopping malls and business parks.
Those looking to explore the real estate sector can invest in REITs or real estate ETFs.
Invest in REITs
If you’d prefer to invest in individual real estate companies, REITs can be bought and sold through a brokerage account in Australia.
Most trading platforms come with research and analysis tools designed to help you compare and select investments across sectors. Stock screeners can help you narrow your options to investments available in the real estate sector, listing real estate companies and REITs alongside key metrics to help you assess your options.
Pros
- Support individual companies. Investing in REITs gives you the opportunity to back individual companies and trusts based on your interests, values and investment goals.
- Highly liquid. Unlike buying and selling physical property, you can swap REITs online in a matter of minutes.
- Dividends. Like stocks, REITs pay dividends, which can act as a source of income.
Cons
- Limited exposure. To compete with the broad selection of securities available through a single ETF, you’d have to purchase many individual stocks.
- Volatile. REITs are easily influenced by interest rate fluctuations, making them inherently more volatile than ETFs.
Pros
- Low risk. ETFs are less risky than stocks because they’re a collection — not a singular entity. The diversity of ETFs helps safeguard the fund from potential losses.
- Portfolio diversification. Buying into an ETF broadens your portfolio with a single purchase.
Cons
- Lower dividends. Dividends from an ETF may have trouble competing with high-yield stocks.
- ETF fees. While it’s possible to swap stocks commission-free, ETFs carry expense ratios that are typically unavoidable.
Why invest in real estate stocks?
Real estate stocks and ETFs typically offer dividends which act as passive income.
Better yet, real estate assets tend to be viewed as a stable investment, as they’re backed by physical property and often have long-term contracts or lease agreements, which can stabilise incoming cash flow.
Real estate investments can diversify your portfolio, while hedging against inflation. By investing in real estate stocks or funds, you own a piece of a tangible asset without purchasing and maintaining the property firsthand. It’s a practical option for Australians who want to diversify their portfolio with real estate but don’t want to own their own property.
What unique risks does the real estate sector face?
The profitability of the real estate market is closely correlated with occupancy rates and property values. If property values fall, so will share prices.
REITs also tend to be more volatile than physical properties, so while you benefit from having the property managed on your behalf, you also take on more risk.
Compare online brokers
If you want to buy stocks or ETFs in the real estate sector, you'll need to start by opening a brokerage account in Australia.
Compare other products
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How we picked theseFinder Score for share trading platforms
We've scored over 30 share trading platforms assessing them for their core features, fees, customer experience and accessibility. Our experts give each platform a score out of 10.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Bottom line
The real estate sector offers the opportunity for stable dividends backed by physical assets but isn’t immune to risk. Australian investors should be wary of shifting property values and occupancy rates before they invest.
Research your trading platform options to find the brokerage account best suited to your needs.
Frequently asked questions
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