Real Estate
Direct property versus listed REITs, where real-estate returns come from and why interest rates matter so much.
Real estate is one of the oldest ways to build wealth: buildings and land that produce rent. You can own it directly or through listed real-estate investment trusts (REITs).
Where the return comes from
- Rental income — REITs must distribute most of their income as dividends.
- Value growth — rents and property values rising with the economy and inflation.
Direct property vs REITs
Direct property offers control and leverage but is illiquid, concentrated and time-consuming. REITs, held through funds like VNQ, give daily liquidity and diversification across offices, warehouses, apartments, data centres and towers — but their prices swing like stocks.
Interest rates are key
Property is usually financed with debt and valued against bond yields, so rising rates hurt real estate — as in 2008 and again in 2022. Falling rates support it.
Role in a portfolio
Real estate adds an income-producing, partly inflation-linked asset, but it is not a strong diversifier against stocks in a crisis. Trend rules help avoid the long rate-driven declines.
Markets in this asset class
Put it into practice: a free account unlocks equity curves and signals for six core markets and the full glossary.
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