Investors in California and around the country who put money into real estate investment trusts enjoyed healthy gains during the first nine months of 2016, but some financial experts believe that REITs will find it difficult to replicate this success in 2017. Through Sept. 30, the S&P 500 provided a robust return of 7.8 percent, but REITs posted an even more impressive 12.6 percent return during the same period. REITs are particularly attractive to investors seeking income in a low-yield environment, but their soaring popularity and rising prices have some analysts concerned.
REITs have also been a popular choice for Middle Eastern and Chinese investors, and financial companies struggling to cope with negative interest rates have also bought the real estate investments heavily. However, the markets may look very differently at REITs if the Federal Reserve acts as expected and raises interest rates. While REITs are generally seen as being sensitive to interest rate fluctuations, some experts point out that they actually increased in value after the last interest rate hike in December 2015.
Analysts say that the popularity of REITs reflects the overall state of the economy. When market indicators are sluggish and interest rates are kept low to stimulate growth, REITs containing property in stable sectors like health care tend to do well. However, when rising rates are reflective of a vibrant and growing economy, REITs featuring properties in more volatile sectors like retail and hospitality may become more attractive to investors.
Experienced real estate attorneys could help investors to choose from a range of REITs by reviewing their portfolios and identifying possible real estate disputes and other legal problems and that could develop in the future. Attorneys may also examine ways that regulatory changes could impact REITs in certain market sectors.