September 6, 2012
Singapore real estate investment trusts (S-REITs) have been singled out as the best performing in the world.
At an average return of 37%, Singapore's REIT market gives investors twice the gains of other REIT markets, including US, UK and Japan. This was according to data compiled by Bloomberg.
The USD 38 billion market outperformed Asia Pacific's largest REIT market, the USD 86 billion Australian REIT market which advanced 24%, making S-REITs the best performing in 2012.
CBRE found that S-REITs growth was powered by asset acquisitions and rental appreciation, and total rental revenue increased 5.8% per year between 2008 and 2011. The property broker added that in H1 2012, S-REITs were the second-most active purchasers in Asia after Japan. The island nation acquired assets in Australia, China, Japan, Malaysia and South Korea, accounting for 33% of all acquisitions by Asia Pacific REITs since 2009.
"Singapore remains amongst the last few AAA-rated economies," said Priyaranjan Kumar, Singapore-based regional director of the capital markets group at broker Cushman & Wakefield.
"Its real estate market has received unprecedented attention from most investors as it's seen to offer a good proxy for the increasingly recognized strength of the Asian consumer."
Bloomberg added that the gap between S-REITs' yield and interest rates is double that of Australia's, offering an average 413 basis point income return premium relative to 10-year government bonds. In Australia, the average is 192 basis points, with a basis point being 0.01 percentage point.
In addition, S-REITs produce a dividend yield of 6.46%, higher than Australia's 5.01% and Hong Kong's 4.93%.
Singapore has the third-largest REIT market in the Asia Pacific region, which has a combined REIT market worth USD 205 billion today - higher than before the global financial crisis, according to the Asia Pacific Real Estate Association.
Q1 2009 was the turning point for Singapore's real estate market, after which prime rents and capital values recovered in excess of 60% over lows during the global financial crisis, said Cushman & Wakefield.
Asian REITs achieved USD 7 billion in total investment turnover in H1 2012, a 14% decline on H2 2011's record on concerns over the eurozone debt crisis and a weakened outlook for the regional economy, noted CBRE.
"Although Asian REITs are expected to remain in buying mode, they will likely turn more selective towards future acquisitions, with yield enhancement and insulation from the global economic slowdown emerging as important criteria," CBRE analysts Ada Choi and Leo Chung said.
With prime rents still 25% to 30% lower than their peak in Q2 2008, there remains ample room for future growth in REITs, said Cushman & Wakefield's Kumar. He added that at current yields, S-REITs remain attractive options for investors seeking total returns.
Eddy Loh, an equity strategist for Asia at Barclays Plc said, "There are a lot of uncertainties in terms of economic outlook, so investors are actually looking for stability, defensive earnings."
"Coupled with the fact that we still have a very low interest rate environment and the dividend yields for some of these REITs can go up 6% to 7% that seems to be very attractive to investors actually."
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