The Motley Fool

In the News: Singapore REITs Labelled “Expensive”

Those mischievous brokers and analysts are at it again. Bereft of anything meaningful to write about they have, somewhat predictably, turned their attention to Singapore REITs. After all, those REITs have outpaced the broader equity market this year. Since the start of the year, the FTSE Straits Times Real Estate Investment Trust Index has surged 18%. On average, they are now trading at around 20% above their book value, which is the priciest they have been for more than six years.

So, what goes up must come down, right? Wrong!

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But according to some market experts, we should ditch REITs and buy something else instead. Thing is, REITs have performed well, given that interest rates have been low. Interest rates have been so low that some sovereign bonds have negative yields. By comparison, US 10-year Treasuries that are yielding around 2% are starting to look more like junk bonds….

…. it’s not too surprising, then, that the market is pushing the US Fed to cut rates.

And it is the prospect of lower rates that have been pushing more investors into REITs. That is one of the unintended consequences of Quantitative Easing, namely, asset price inflation. In this case, the price of REITs, which is an asset, have climbed.

But rather than switch, consider why you bought those REITs in the first place. If the objective was to secure income – preferably rising income – for the long term, then REITs should continue to deliver.

But if your objective was to make a quick gain, then, by all means, sell. It might even bring prices down for those of us with an eye on the long haul.

Point is, REITs should continue to do well provided there is plenty of liquidity in the market or there is healthy economic activity. I don’t see either of those two things disappearing any time soon.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.