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Most of Singapore’s real estate investment trust’s (REIT) buying action moved to other markets in the recent months on the back of relatively few suitable assets available to buy here, Urban Land Institute’s Emerging Trends in Real Estate Asia Pacific 2016 report revealed.
“Another issue is that, although cap rates have not moved much, rents in REITed (sic) space are generally soft,” said the report.
The rising base rate in Singapore has also increased the financing costs for REITs – a trend that can only continue if the Singapore dollar weakens more.
“REITs have taken the view that offshore assets can be more competitive, just as sustainable in earnings, and for the most part, whatever risk there is associated with the repatriation, the currency, interest rates, or what have you can all be boxed in,” said a local REIT manager.
Australia, for instance, has witnessed significant buying activity from Singaporean REITs (S-REITs) in 2015, with one especially large deal in the logistic sector.
S-REITs also acquired assets in China, Japan and South Korea during the year.
Notably, the strong gains experienced by Asia’s major REIT markets – Japan, Australia, and Singapore – stalled in 2015 as investors tried to price in the timing of an anticipated hike in the US base rate.
“Higher global interest rates are seen as a disincentive to REIT investors who are more likely to find alternative possibilities in the bond markets. They are also negative for REITs because they increase the cost of borrowing required to fund new purchases,” said the report.
In Japan, REIT prices in Q4 2015 are almost similar to year-ago levels but remain up by 66 percent from October 2012, when Prime Minister Shinzo Abe ushered in the era of Abenomics with a mandate, among other things, for the Japanese government to acquire J-REIT shares. However, prices are now down by about 15 percent from the January 2015 peak.
Meanwhile, share prices for Australian REITs (A-REITs) grew by around 15 percent year-on-year in Q4 2015.
“A-REITs have benefited from falling interest rates and the overall quest for yield—given the good (and widening) risk-free spread, returns still seem attractive. However, with cap rates continuing to move down, identifying accretive acquisitions remains difficult,” noted the report.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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