REITs Are Benefitting From Low Interest Rate

Real estate investment trusts and other shares of trusts are benefiting from current low interest rate environment in Asia. Business trusts are not as in demand compared to REITs.

For REIT in Singapore, 90% of the underlying assets are completed development that are income producing. For Business trusts, they can include business assets like sea ports, ships on top of property that may be still under construction, thereby render such investment return as not certain.

In view of the current low interest rate and risk-averse environment, investors are eyeing more toward high return bond assets. REITs seem to fit nicely in current environment as compared to business trusts.

REITs listed in the Singapore Stock Exchange are providing a decent yield of 6 to 7% which are way above the return from SGD fixed deposit. Meanwhile, return from business trusts are generally higher than REIT to compensate for the higher risk.

Even as investors are eyeing for yield, they are also concern about the underlying assets as well. So far, business trusts listed in the Singapore Stock Exchange fared worst than REIT. For example, Religare Health Trust, Hutchison Port Holdings Trust and Perennial China Retail Trust were trading below their respective IPO prices.

REITs, on the other hand, like Far East Hospitality Trust and Ascendas Hospitality Trust were trading higher than their respective IPO prices. 

19 Dec 2012