Wilson analysts tip 2 small-cap ASX real estate shares to buy for juicy returns

After ten monster interest rate rises over the past year, the real estate sector, as well as ASX real estate shares, has really taken a hammering. But with the Reserve Bank nearing the end of its rate hike campaign, is it now time to pick up some bargains? Wilson Asset Management senior equity analyst Shaun Weick has a couple of small-cap ideas:

Ready to cash in on ‘a very strong second half’

Lifestyle Communities Ltd (ASX: LIC) shares have been severely impacted by the weak sentiment for real estate, dropping almost 25% since 3 February.

But Weick reckons it can “buck the trend” of the negativity surrounding the property market. “That’s a buy for us. We think stabilisation in interest rates is within sight, and that will put a floor under housing market sentiment,” he said in a Wilson video.

Lifestyle Communities provides residential communities for elderly clients. Weick feels like it will have a bumper finish to the 2023 financial year. “The company has reiterated their FY23 settlements guidance, which implies a very strong second half and the FY24 period,” he said.

“[This] is at the same time when the communities under release is more than doubling, which will drive a material acceleration in earnings growth from here.” After the recent dip, the share price is now looking ripe for pickups. “The valuation on the stock is screaming attractive, at 17 times earnings with significantly above-market earnings growth.”

An undiscovered gem

Qualitas Ltd (ASX: QAL) is a real estate investment manager that deals with private credit and equity in commercial property.

“Qualitas is undiscovered, much like the private credit space. We think it’s a buy.” The crisis in confidence in the sector has also impacted the Qualitas share price, causing it to freefall more than 18% since 13 March.

But the “underlying quality” is “very high”, according to Weick, citing 60% growth in its latest results. “The banks are continuing to retreat from the private credit space, which is underpinning very strong deployment opportunities,” he said.  “And globally, you’re seeing institutional investors want to access a nascent asset class here in Australia.”

The private credit industry also benefits when the official cash rates rise.

Weick is not the only one bullish about Qualitas.

According to CMC Markets, all three analysts currently covering the stock rate it as a strong buy.

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