How the Fed will help Singapore Reits outshine banks

Singapore's property owners, overshadowed by the strong performance of the country's banks, may soon see a turnaround as US Federal Reserve Chair Jerome Powell signals potential monetary easing.

The three major local banks—DBS, OCBC, and UOB—have benefited from higher interest rates, with their combined dividend payouts reaching S$11.3 billion ($8.7 billion) last year. Meanwhile, real estate investment trusts (REITs) have struggled with higher financing costs, distributing between S$5 billion and S$5.5 billion annually to unitholders, affected by asset impairments and post-pandemic interest rates.

However, as interest rates ease, REITs are expected to benefit from lower financing costs, leading to higher rental income distributions.

OCBC analysts predict a 2.9% increase in median REIT payouts next year. Some REITs, like Prime US REIT and United Hampshire US REIT, have begun to show signs of recovery in challenging markets such as US office spaces and retail. With the potential for cheaper capital, REITs could expand further, and the local property market, bolstered by steady tourist arrivals and low unemployment, may regain its appeal. If US rates fall, the banks' dominance could wane, allowing landlords to reclaim their spotlight.

Article by Andy Mukherjee for The Business Times. Read more here or in the PDF below.

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