REITs

I realised that I hardly touch on REITs in my blog posts, so thought I should share some quick thoughts on them as well as acting as an update on an earlier post that I did on REITs. I still don't think that REITs make good investments at their current prices, but I may reconsider this in the near future as market conditions changes.

(Image source: flickr.com)

Prices of office, retail space in Singapore both fell in Q3: URA

The price of office and retail space dropped very marginally in Q3 according to URA, 0.1 and 0.3% respectively. The rental of office and retail space on the other hand has dropped a fair bit, 2.9% and 2.0% respectively. This is in addition to earlier drops in Q2, which will affect quite a lot of REITs that own office buildings and malls and it doesn't seem like the trend may be stopped or reversed in the near term as supply is expected to outstrip demand for office space which would drive office rentals even lower.

Another issue for me is the possibility of an increase in interest rates. This will negatively affect REITs in two ways. First, their cost of borrowing would increase, which would eat into their distributable income. Acquisitions would also appear less attractive, so the REITs may not be able to expand their portfolio. Second, as interest rates increase, REITs would also be under pressure to increase their dividend yields. With the two factors above acting almost simultaneously, it is a tall order for REITs to increase their distributable income. The prices of the REITs are then likely to fall so their dividend yields increases so as to remain attractive to investors. 

Since writing my previous post, the prices of REITs have dropped considerably, but so has most of the shares so I think there may be better opportunities out there than REITs at the moment. But as the factors mentioned above start to take hold on the REITs, the prices of REITs are likely to drop and I may consider to invest in REITs then so as to lock in their high yields as well as ride their growth if and when rentals start to increase again and the interest rates drop.

If you have enjoyed this post and would like to receive notifications on new posts, you can subscribe to my blog via email or like our Facebook page