Are S-REITs Boring Now?

There were some comments floating in investment chat groups and forums that Singapore real estate investment trusts (S-REITs) have become rather boring. Their prices have largely moved sideways over the past few months, and the excitement that accompanied the anticipated interest rate cuts seems to have faded.

It is understandable why such a view exists. Many investors had expected the rate-cut cycle that began in 2025 to provide a stronger tailwind for REIT prices. Instead, the asset class has spent much of its time “heading nowhere”.

However, "boring" does not necessarily mean "bad".

 

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Why Are S-REITs Moving Sideways?

The most obvious reason is the interest rate environment. While interest rates have come down from their peaks, the pace of future cuts has become less certain. Markets are increasingly expecting rates to remain elevated for longer than initially anticipated. As REITs are generally sensitive to interest rates, this has reduced some of the optimism that fuelled the sector's recovery previously.

Another factor is the strength of the Singapore dollar (SGD). For S-REITs with overseas assets, a stronger local currency means that foreign rental income translates into fewer SGD when distributions are paid. This creates a headwind even when the underlying properties continue to perform well.

But The Fundamentals Remain Intact

What is often overlooked is that many S-REITs continue to report healthy operating metrics.

Occupancies remain generally stable. Rental reversions remain positive in several property sectors. Debt refinancing pressures have also eased compared to the period (2022 to 2023) when interest rates were rising aggressively.

In other words, the challenges faced by many REITs today are mostly financing and currency-related rather than operational.

The Bedokian's Take

I had previously written about whether REITs were "doomed" during the height of the interest rate hiking cycle (link here). My answer then was no, and my answer today remains the same.

The role of REITs within the Bedokian Portfolio serves two main purposes; the first is income generation. REITs are designed to distribute the bulk of their earnings to unitholders, making them useful financial instruments for investors seeking passive income.

The second is diversification. REITs provide exposure to real estate through a listed security (equity/property hybrid), giving them a different risk-and-return profile compared to the other asset classes (i.e., equities, bonds, commodities and cash).

This does not mean investors should rush out and load up on REITs. As always, diversification remains important. The more relevant question is whether one's current REIT allocation remains consistent with the preferred portfolio weighting.

If REITs have fallen below their target allocation due to recent underperformance, then directing new capital towards the asset class may simply be a form of portfolio rebalancing. If allocations remain broadly on target, then patience may be the better course of action.

The restaurant may have a shorter queue than it did two years ago. That does not mean the food has become worse. It may simply mean that fewer people are paying attention. For the long-term income investor, that is sometimes the most interesting time to take a closer look.

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