Is the REIT market overheated?

July 23, 2012 11:30AM

While real estate investment trusts can offer relatively lucrative returns, the market for some REITs may be overheated, and investors should think twice about which ones they invest in, Jack Hough wrote in a Wall Street Journal column.

REITs have had a strong year — the MSCI U.S. REIT index has gained 30 percent since last October, the Journal said — likely because  yields on other investments are low. And while REITs have been offering the same yield as corporate bonds — 3.4 percent — they have the potential to offer higher dividends in the long term, as rents will likely rise, the Journal said.

Nonetheless, as investors have gravitated towards residential REITs, the market has gotten frothy, the Journal said. A more prudent investment would be investing in a REIT that owns industrial properties — a less sexy, more predictable asset class. [WSJ] — Guelda Voien