S-REITs Poised for a Rally as Interest Rates Fall, But Risks Remain 

SINGAPORE – With declining interest rates and strong liquidity, Singapore Real Estate Investment Trusts (S-REITs) are gaining traction as attractive yield plays. The yield on 10-year Singapore Government Securities (SGS) has fallen to 2.62% as of March 10, its lowest level in five months and near a three-year low. Meanwhile, the FTSE REIT Index’s yield stands at 6.5%, creating a 3.9% yield spread—a gap that historically leads to an S-REIT price rally.

Interest Rates Declining: A Boost for REITs

Market analysts expect further rate cuts, making REITs more appealing:

• DBS Group Research notes that one-month Sora (Singapore’s benchmark rate) has peaked in FY2024, currently stabilizing between 2.4% and 2.5%.
• JP Morgan has upgraded REITs to Overweight while downgrading banks to Neutral, citing a 100bps drop in Singapore interest rates over recent weeks.
• JP Morgan projects a 15% upside for S-REITs compared to their September 2024 highs, when the risk-free rate was at its lowest in a year.

JP Morgan’s Top S-REIT Picks

JP Morgan is favoring Singapore-focused REITs with solid fundamentals, including:
✔ CapitaLand Integrated Commercial Trust (CICT)
✔ CapitaLand Ascendas REIT (CLAR)
✔ Keppel DC REIT
✔ Frasers Centrepoint Trust (FCT)
✔ Mapletree Logistics Trust (MLT)

These REITs are expected to benefit the most from falling borrowing costs and resilient demand for commercial and industrial spaces.

💰 Borrowing Costs Expected to Decline

JP Morgan predicts that S-REIT borrowing costs will trend lower, particularly benefiting:
📉 CDL Hospitality Trusts – Due to its high proportion of floating rate debt.
📉 Frasers Centrepoint Trust – With a large share of SGD-denominated debt, it may see borrowing costs fall below management’s guidance.

Additionally, S-REIT bond coupons have dropped to 3.2%, a three-year low, while yields at 6.3% make them more attractive than bank dividend yields at 6.2%.

Rate Cuts Still Uncertain Amid Inflation Concerns

While S-REITs stand to gain, DBS warns of risks, particularly persistent inflation and trade uncertainties:

• Expectations for Fed rate cuts have fluctuated, with markets now pricing in two to three cuts by the end of 2025.
• U.S. trade tariffs and economic uncertainties could rekindle inflation fears, impacting business growth and economic stability.

The Outlook: REITs vs. Other Investments

Alternative income sources, such as six-month Singapore Treasury Bills (T-bills) at 2.75%, have seen rates decline, making REITs more attractive in comparison.
If the yield spread continues to widen, a short-term S-REIT price rally is likely.

However, investors should remain cautious as economic volatility and inflation concerns persist. For now, falling rates provide a strong tailwind for S-REITs, making them one of the more attractive yield plays in the Singapore market.

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