Key Points:

Listed property sector stocks are bargains and will remain good buying even if real estate vacancies increase and dividends are chopped back.

So say Craig Tyson, ING (NZ) investment manger, and Craig Brown, senior investment analyst at ING (NZ), who said returns from the sector were well above bank rates and property was a defensive investment.

Even if vacancies rose from the current average 2.4 per cent in the listed sector to 10 per cent, yields would still be extremely attractive, they said.

Tyson has studied the analysts' forecasts of eight listed property trust and companies and found them all trading at discounts to net tangible assets and yields ranging from 6.7 per cent at Property For industry to 16.2 per cent for Kermadec Property Fund.

The sector's average yield was 10.5 per cent, he said. Payouts for this financial year are also picked to stay high and Tyson wondered if investors in single-asset syndicates or residential real estate would get good such good returns.

"Distributions have never been this good," Tyson said of the listed sector.

Tyson and Brown backed a report from analysts at Forsyth Barr who studied returns from the listed property sector.

Last week, the Business Herald reported that Jeremy Simpson and Matthew Leach examined what the big premium NZX-listed real estate entities were offering as against fixed-interest investments and said even if some property businesses suffered rising vacancies and other woes, they still offered attractive returns.

They predicted the sector's ability to pay high returns would eventually change, particularly if market volatility continued but Bruce Sheppard of the Shareholders Association warned against investing in the sector which he said had falling fortunes and was dogged by external managers.

ING's New Zealand operations have management contracts and stakes in two of the eight vehicles in the sector: ING Property Trust and ING Medical Properties Trust.

In the latest round-up of the sector out last Friday, Simpson and Leach said property has defensive qualities compared to the broader share market "but it is not without risks".

They cited considerable uncertainties about how bad property values, vacancies and rents would get in the next 12 to 24 months. Kiwi, Goodman and ING Medical are their picks.

ING's global property securities update, out in December, found international listed property stocks had fairly stable underlying core earnings and higher dividend yields than other stocks.