Singapore investors are picking REITs over developers

SINGAPORE: Buy the businesses that hold the real-estate assets rather than the ones that sell them.

That’s the message from a growing number of analysts in Singapore who say REITs, or real estate investment trusts, are a better bet than developers in light of the island’s recent cooling measures.

For much of 2017 and the first half of this year, Singapore developer stocks had a great run. Rising home prices and climbing sales were among signs the city-state’s residential market was emerging from a deep freeze.

That all changed on July 5, when the government shocked the indus- try by imposing a fresh set of curbs that came into effect at midnight the following day.

Now, the trade has reversed. The FTSE Straits Times REIT Index is outperforming a benchmark that tracks developers.

Property stocks, which had their best annual gain in five years in 2017, have declined 5.4% since July 5, while REITs are up 1% over the same period.

“There’s been a lack of interest in developer stocks post the cooling measures and some of that capital has moved out to other sectors,” Vijay Natarajan, an analyst at RHB Research Institute Singapore Pte, said in a phone interview. “The market had not expected the severity of the measures announced.”

Singapore took renewed steps to cool home prices after they rose more than 7% in the first six months.

Under the new rules, individuals taking out their first housing loan face stricter borrowing limits, meaning they have to stump up more cash upfront. For foreign purchasers of residential property, the additional buyer’s stamp duty was increased to 20% from 15%.

That’s going to impact home sales and prices. Developers may lower asking prices by as much as 10% following the cooling measures, according to Jefferies Singapore analyst Krishna Guha, who said he prefers REITs post the curbs.

Macroeconomic uncertainties have also kept sentiment subdued for developer stocks, and investors see REITs as a safe haven, according to DBS Group Holdings Ltd analysts Mervin Song and Derek Tan.

Among the property trusts, the office sector looks the most attractive, followed by industrial trusts, they said. CapitaLand Commercial Trust - Singapore’s largest office landlord - and Ascendas Real Estate Investment Trust are among their top picks. — Bloomberg