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Can REITs Do Well in an Era of High Interest Rates? - Seedly Personal Finance Festival 2023

Seasoned investors Alvin Chow, Willie Keng, and Rusmin Ang were on the panel to share perspectives on various investment opportunities and risks, with a specific focus on REITs (Real Estate Investment Trusts) in Singapore.

Alvin had been closely monitoring the recent interest rate movements in the US. He noted that interest rates had been raised, and the yield instruments were sensitive to these movements. This had implications for investors who were considering investing in bonds, as bonds were principal guaranteed and did not fluctuate as much as other investments, which is why they had been popular in the high interest rate environment at that time. Chow believed that they were near the peak of interest rates, and it could be a good time to explore investment opportunities in REITs.

Willie cautioned against investing in one particular sector of stocks and emphasized the importance of diversification across stocks and REITs. He highlighted that investors should carefully consider the difference between what they were paying for a stock or REIT and the underlying value they were getting. Willie also mentioned that investors should be cautious with REITs that had overseas assets and consider factors like gearing (debt levels) and rental income coverage for interest payments, especially in the face of rising interest rates.

Rusmin believed that one could not get rich from fixed income alone. He highlighted that in the current investment landscape, inflation volatility was a key factor to consider. He mentioned that rental income could increase based on inflation and sales of tenants, which could impact the performance of REITs.

Willie also warned about the impact of high interest rates on REITs, which could cause them to face challenges. REITs were required to pay interest on their debts, and high interest rates could affect their profitability. He advised investors to avoid US commercial REITs, as the return to office was minimal. Instead, he suggested focusing on local REITs, such as CapitaLand and Mapletree, and getting a good feel for the tenants' businesses and overall market dynamics.

Overall, the experienced REIT investors provided valuable insights for navigating the current investment landscape. It was important to carefully consider factors such as interest rates, diversification, underlying asset values, inflation, and market dynamics when making investment decisions. By staying informed and taking a holistic approach to investment planning, investors could potentially capitalize on opportunities and manage risks in the dynamic investment environment of that time.


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