Singapore real estate investment trusts (Reits) have gone from being last year's biggest losers to this year's best performers as their world-beating yields attract investors, including BNP Paribas Investment Partners and Samsung Asset Management.
Singapore Reits, which mostly invest in malls, offices and industrial buildings, offer the highest dividend yields among developed markets, according to data compiled by Bloomberg.
That has propelled an 8.9 per cent increase in the FTSE Straits Times Real Estate Investment Trust index this year as yield-hungry investors flock to the offerings amid record- low interest rates.
"We're overweight on Singapore Reits," said Mr Jan Willem Vis, the Amsterdam-based senior portfolio manager at BNP Paribas. "They're attractively valued compared to other markets. Reits are a very good alternative to bonds and they pay sustainable dividends."
International investors including BNP, Bank of New York Mellon and Samsung Asset have accelerated purchases of Singapore Reits since June, amid growing expectations that central banks will keep interest rates lower for longer. Fund managers have bought 217.84 million units in the five biggest Singapore-listed Reits, the data showed.
The 7 per cent yield offered by Singapore Reits exceeds 6 per cent for those listed in Australia and the US and Japan's 4 per cent, according to data compiled by Bloomberg. The buying has helped the FTSE Straits Times Real Estate Investment Trust index erase most of an 11 per cent slump last year, when it was the worst performer among Reits listed in Australia, the US, Japan and Europe. This year, the Singapore Reit index has beaten all those peers.
"We like industrial Reits as we're still seeing upward rental reversions for industrial and business parks," said Samsung Asset's Hong Kong-based fund manager Alan Richardson. "I don't see much downside risks for Singapore Reits even if interest rates start going up."
Owners of industrial buildings and business parks are benefiting from demand for office space from bio-medical and social media companies, said Mr Richardson.
Ascendas Reit has climbed 7 per cent this year, and Mapletree Industrial is up 13 per cent. The Reits have also beaten the benchmark Straits Times Index, which has declined 1.8 per cent this year.
Singapore Reits are being supported by tenant demand. Rents in business parks will hold up as additional supply is mostly already leased, while hospitality Reits will benefit from a rise in tourist arrivals.
Office rents are expected to recover next year after a 10 per cent to 15 per cent fall this year, said UOB Kay Hian analyst Vikrant Pandey.
Not every one is bullish on Singapore's Reits. Daiwa Capital Markets analyst David Lum downgraded the sector to "neutral" from "positive" in August, saying a rise in prices had returned them to fair value. Daiwa's main concern was the unit prices of some large-cap Reits might not be sustainable if underlying fundamentals continued to deteriorate or if bond yields rose again, Mr Lum said in August.
"The chase for yield drives people into equities," said Mr Hans Goetti, chief strategist for the Middle East and Asia at Banque Internationale a Luxembourg.