As government bond rates rise, the appeal of real estate investment trusts (REITs) has diminished, yet individual investors are increasingly buying REIT exchange-traded funds (ETFs). Analysts suggest this trend reflects a strategy to capitalize on price adjustments caused by interest rate pressures.
According to financial information provider FnGuide, individual net purchases of 14 domestic REIT ETFs totaled 29.8 billion won in September, a 44.4% increase from 20.6 billion won in August.
The influx of funds has primarily concentrated in major REIT ETFs. Individual net purchases of the 'TIGER REITs Real Estate Infrastructure' rose from 16 billion won in August to 20.7 billion won in September, a 29.4% increase. Similarly, 'KODEX Korean Real Estate REITs Infrastructure' saw its net purchases surge from 3.6 billion won to 11.2 billion won, more than tripling during the same period.
REIT ETFs are products that distribute dividends based on rental income generated from real estate. While they can provide regular cash flow, their investment appeal may wane during periods of rising interest rates. Higher bond yields diminish the competitiveness of dividend-paying assets, and REITs with significant debt face increased interest burdens.
Despite this, the growing individual buying trend may be driven by expectations that much of the negative impact from rising rates has already been priced in. There is also a demand for diversifying investments into dividend-paying assets to hedge against stock market volatility.
However, the buying momentum has not spread across all REIT ETFs. Among the 14 surveyed, only three saw an increase in net purchases compared to the previous month, while five experienced net selling, indicating a concentration of funds in select large products.
Market analysts believe that future interest rate trends will significantly influence investor sentiment toward REITs. If uncertainties surrounding rate hikes diminish, the potential for price recovery in REITs may increase. Lee Eun-sang, a researcher at NH Investment & Securities, anticipates that as uncertainties regarding interest rate hikes gradually resolve, the REIT stock index will rebound. Park Se-ra, a researcher at Shin Young Securities, noted that once interest rates stabilize, the fundamental strengths of individual REITs, such as rental income, occupancy rates, and profit growth, will become increasingly important.
* This article has been translated by AI.
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