Singapore's real estate investment trusts, or REITs, are in no position to appreciate much more this year. This was after they enjoyed a 20% increase this year, according to CNBC. Given that knowledge, analysts still see them as a "buy" given that interest rates for these REITs will likely stay low.
Investors are attracted to REITs because of their dividend payout, as well as the opportunity for their capital to appreciate. These REITs are also good for diversifying portfolios and not just funneling money into cash, bonds, or stocks.
The REITs on the Singapore Exchange, in particular, are widely sought after by institutional investors. That's why these have during the first six months of 2019-enjoyed a windfall of investments after a net inflow of $291.85 million from the same investors.
This had the effect of lessening the chance for capital appreciation, according to analysts. The prices have gone up by 20% because of these, besting even the Straits Times Index's 9% rise. It is in line with gains having been expected at the MSCI World REITs Index. Suresh Tantia, a senior investment strategist at Credit Suisse, also said that there's very little capital appreciation to expect after the rise in interest.
The interest in REITs had to come somewhere, and they are, after all, perfect investment assets for diversification. The reason behind this interest may have been because of the slow economic rise of Singapore. Indications are there that the economy didn't do well in 2019, Channel News Asia reported. The economic growth of 0.1% year-on-year certainly is cause to find diversified assets.
This was unexpected by economists, who had the Singaporean economy growing by at least 1.1 percent. It was also the lowest since the second quarter of 2009, where the gross domestic product (GDP) contracted by around 1.2 percent, according to data. The estimate was also significantly lower than what had been a reported 1.1% expectation during 2019's first three months.
The underperformance was the result of a number of factors including the United States and China's impasse prior to the G20 meeting last month, as well as the reactions in manufacturing supply chain activities after the US-led bans on Chinese tech company Huawei. Local construction was a bright spot in Singapore's economy, although it was on a slower pace.
Investing in REITs could still be a viable strategy, although it might no longer be THE strategy. However, according to analysts, the current 5% yield is still very much attractive, making them mark Singapore REITs a "buy".