Current and Projected Performance of the Singapore REIT market

| June 2, 2013 | 0 Comments

singapore reit investment Future projections by certain financial authorities within Singapore have stipulated that local interest rates within Singapore will remain low till 2014 at least. The reasons behind this can be attributed to the slow moving economy, as well as the strength of the Singapore Dollar, in conjunction with low US interest rates. For REITs, this is good news because debt re-financing costs will remain low and allow for higher returns for shareholders.

During August last year, in Singapore, REITs were basically divided into 5 smaller categories. Out of these five, office-based REITs were being traded at a discount to their actual book prices whereas industrial and healthcare-based REITs were trading at a higher value than their Net Asset Values (NAV) or Book Prices.

Since then, the overall REIT market has followed almost the same pattern with just a couple of minor fluctuations. REIT performance is extensively dependent upon the nature of the assets that they contain, and on interest rates. For example, office and industrial asset-based REITs are more susceptible to economic changes as compared to retail or healthcare asset-based REITs. However, with the former category, investors can expect more growth potential due to the increased risk that they are facing by placing their money in assets that are dependent upon the economy.

In Singapore, Retail REITs are considered to be quite resilient to economic downturns as compared to other categories. Most malls within Singapore have been able to maintain full occupancy regardless of the slowing down of the economy over recent years. However, the yield offered has been considerably lower.

Moreover, healthcare-based REITs have experienced a surge in growth and future prospects due to the increase in the number of tourists within Singapore in recent years. During the last year, the supply of hotels was considerably lower than the rate of tourists arriving within the country. Therefore, the development of hotel infrastructure will create more inlets for other types of REITs that include hotels.

Industrial-based REITs have flourished considerably during the last 18 months. Considerable growth has been witnessed both in terms of rent and capital appreciation. One of the main reasons why this has happened is due to the introduction of master lease agreements. According to these agreement, a lessee can sub-let the space to another tenant using the same conditions and agreement that he or she is subject to by the original owner. Although this has had an adverse impact upon the tractability associated with raising rents, it has allowed for consistent revenue which is far more important for most shareholders.

Consequently, it is projected that the value of REITs within Singapore will continue to increase owing to current and future economic conditions.

Category: REITs

About the Author ()

John Tan has been Vice President of BlueTrust Investments Corporation for 6 years since the mid-90’s. He has since moved on, to be a professional full-time trader.

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