SINGAPORE – Singapore’s $100 billion REIT market is expected to remain resilient despite heightened interest rate volatility under a new Federal Reserve chairman, although analysts say refinements to the REIT framework and the introduction of new listed real estate investment vehicles could strengthen its long-term appeal.
That will be music to the ears of investors like David Ong, who has grown concerned about the slowing returns of his REIT investments in recent years.
“REITs are stable in the long run but growth seems really slow,” said the 36-year-old, who considers himself sufficiently knowledgeable in investments.
Ong, who works in the healthcare industry and keeps a diversified portfolio, is worried that Singapore REITs could be hit badly if interest rates were to go up, with rumours of a hike already swirling on Wall Street.
Still, he has no plans to exit the asset class, saying it remains an accessible way to gain exposure to the property market without having to put down a large sum of money.
Despite market expectations that the US Federal Reserve would cut interest rates to support a slowing economy, the central bank kept rates unchanged at 3.5 per cent to 3.75 per cent at its June meeting.
It was the Fed’s first meeting under new chairman Kevin Warsh, whose leadership is set to strike a different tone than his predecessor Jerome Powell.
Before Warsh assumed the role, the Fed had commonly issued “forward guidance”, where it communicated its expectations for the economy and the likely path of interest rates.
But Warsh has argued that this is excessive communication, as it creates an environment where the market expects too much from the Fed, leading investors to treat its projections as firm commitments rather than conditional guidance.
Without further guidance from the Fed, the market may now face higher volatility, leading investors to seek greater compensation for taking on added risk, analysts said.
The market is already expecting greater volatility ahead of the Fed’s meeting on July 28 and 29.
While Warsh had said on July 1 that inflation risks have started to come down, minutes from the June meeting revealed that officials are largely in favour of a rate hike to bring inflation down to a target of 2 per cent.
Impact on S-REITs
The shifts in the new Fed chair’s approach to monetary policy could have an impact on the Singapore REIT market.
Singapore hosts the largest REIT market in Asia excluding Japan, comprising around 40 trusts with close to $100 billion in market capitalisation, and is an important component of the Singapore stock market.
But REITs are also sensitive to changes in interest rates because they rely on debt to finance their property portfolios. Higher borrowing costs can reduce the income available for distribution to investors, who often compare a REIT’s dividend yields with government bond yields.
This could also affect the value of the underlying properties owned by a REIT, said EY’s Singapore head of assurance Lee Wei Hock.
Should property valuations decline over time, REITs could face greater difficulty refinancing loans or raising capital to acquire new assets, Lee said.
REITs that carry more debt, have a larger share of floating-rate borrowings and face near-term refinancing are likely to be hit harder if economic growth slows and fixed leases prevent them from increasing rents, Maybank Securities equity analyst Krishna Guha added. This can limit growth.
Greater interest rate volatility can therefore reduce the appeal of REITs, making the asset class less attractive to investors.
This was the case for 38-year-old engineer Marcus Goh, who stopped investing in REITs two years ago after noting that his capital losses outweighed the dividends.
“It’s nice to see the dividends at first but there was little to no capital appreciation in my investments,” said Goh, who is now focused primarily on stocks and is not considering a return to investing in REITs for now.
Still resiilent
Analysts The Straits Times spoke to did not appear overly concerned though.
OCBC Bank’s head of equity research Carmen Lee noted that REITs have fallen from their five-year high in 2021 and have not returned to those levels, reflecting that current valuations already take into account the impact of higher interest rates.
This suggests limited downside from current levels. Singapore REITs are projected to yield around 5.9 per cent in 2026, similar to the previous year, before rising to 6.1 per cent in 2027.
The REIT market is still stable and a broad-based sector sell-off is unlikely, said CGS International’s research analyst Li Jialin.
She noted that net fund flows into REITs, including institutional and retail flows, since the start of 2026 have been marginally negative, suggesting the sector is not crowded enough to trigger a large sell-off.
Singapore REITs also remain reasonably priced after seeing a drop in the wake of the Iran conflict, and their fundamentals remain intact.
“REITs with prudent balance sheet metrics are better positioned, including those with manageable borrowings, strong fixed-rate protection, and well-staggered debt maturities,” Li said.
Other analysts added that Singapore’s REIT market has benefited from a period of easing borrowing costs following the sharp interest rate increases of 2022 and 2023. During that period, many REITs saw their valuations fall and distributions come under pressure as financing costs rose.
Refining the REIT asset class
Still, with rates likely to stay volatile moving forward, some refinements will therefore be needed to ensure the Singapore REIT model remains competitive and relevant, said EY’s Lee.
Current gearing limits could be reviewed and recalibrated to reflect the differing risk profiles of asset classes and geographic markets, he noted.
Distribution policies could also be made more flexible, allowing REITs to retain a greater proportion of earnings to fund growth initiatives.
Given geopolitical developments and changes in Fed policy, it would also be timely for SGX to explore a new cornerstone asset class beyond REITs to support the next phase of its growth, Lee added.
One possibility is the development of more “evolved and sophisticated” REIT-like structures with larger market capitalisations that are aligned with the investment thresholds of institutional investors.
These products could continue to offer long-term value while taking on a more calibrated exposure to development and investment risks.
They would also build on Singapore’s strengths as a wealth management hub, underpinned by political stability and a robust regulatory framework that continue to attract family offices, hedge funds and wealthy investors.
In an environment with less policy signalling from the Fed, investors are likely to place even greater emphasis on company fundamentals, balance sheet resilience and capital allocation discipline, noted SGX Group’s market strategist Geoff Howie.
He added that the REIT market has broadened beyond traditional property exposure into sectors linked to long-term structural themes such as digitalisation, healthcare demand, e-commerce logistics and data infrastructure, and remains one of the most liquid, well-covered and actively traded segments of the Singapore market.
OCBC’s Lee said the sector could be strengthened with more data centre REITs since more of such assets are being built in the region, including Malaysia and Thailand.
For now, some of the bigger Singapore REITs with wider holdings are more favourable, such as CapitaLand Ascendas REIT and CapitaLand Integrated Commercial Trust, which comprise the real estate group’s industrial, office space and retail assets.
Other REITs include Parkway Life REIT – with Mount Elizabeth and Gleneagles hospitals in its portfolio – and Keppel DC REIT, the real asset manager’s data centre investment play.
Maybank’s Guha cited Centurion Accommodation REIT, CDL Hospitality Trusts and Lendlease Global Commercial REIT as defensive and growth picks that offer around 10 per cent yield and growth, deriving most of their income from Singapore while trading below book value. Mapletree Logistics Trust could also see growth with portfolio repositioning and less intense headwinds in China.
While returns may be modest over the near term, Singapore REITs are still expected to deliver returns above inflation and offer higher yields than comparable government bonds, Guha said.
Their returns also tend to move independently of other asset classes, making them a useful way for investors to diversify their portfolios, he added.
