Singapore REITs: Are they worth buying now?

Singapore REITs are back in the spotlight again. After spending a couple of years after the Covid-19 pandemic being hated on, they are starting to show up on investors' radars.

Ok, let's not kid ourselves. The main reason for that is simple; interest rates are coming down, and Singapore investors love those dividends… which are starting to look a lot more tasty given all the super sad/low yields.

Look at what's happened to so-called "safe" options in Singapore for yield fiends. The latest 6-month Singapore T-bill yields barely more than 1.40 per cent per annum (p.a.).

Meanwhile, what about Singapore Savings Bonds (SSBs)? They no longer feel like the no-brainer they were when rates were north of three per cent. Enter Singapore's REITs, with yields of at least four per cent to north of six per cent.

It also helps that 2025 was a genuinely strong year for the sector. The iEdge S-REIT Index managed to deliver a total return of 16.3 per cent last year, marking its best calendar-year performance since 2019!

So, the question on everyone's lips is: "Are Singapore REITs worth buying now?"

The short answer is "it depends", but let's dive in because it comes down to way more than just interest rates.

Falling rates is not a "silver bullet"

One of the biggest misconceptions out there about Singapore REITs is that the moment interest rates start falling, we should be throwing REIT parties because distributions "are back, baby!".

That's not at all how it works in practice. In fact, many Singapore REITs are still reporting flat or even falling distributions, even though rate cuts from the US Federal Reserve have already been going on for a while now.

The reason is mainly down to timing because REITs need to refinance their debt every so often, and it's obviously not done all at once.

A large portion of their borrowings (and therefore interest rates) were locked in during the high-rate environment of 2022 to 2024, or even before that, when rates were super low.

Until those loans mature and get refinanced at lower rates, interest expenses remain elevated. Indeed, some of those (Covid-era) loans might roll over and require a higher re-pricing.

The end result of that? It's going to take time for lower interest rates to feed through to REITs' bottom lines, and some REITs might even have higher interest expenses if they're re-pricing loans from 2020 to 2022.

This is also why headline yields can sometimes be misleading. A REIT yielding seven per cent today might still see its distribution decline slightly next year before stabilising. Meanwhile, a REIT yielding 4.5 per cent could quietly be setting itself up for more sustainable growth.

Why the mega REITs usually have lower yields

If you've compared Singapore REITs before, you'll notice a pattern. The big, household-name REITs almost always yield less than the smaller, more obscure ones. There are multiple reasons for that.

Large-cap (i.e. big) REITs tend to have several structural advantages. They usually enjoy better access to capital markets, stronger relationships with banks, and more diversified property portfolios.

That gives them flexibility when interest rates move. That's in stark contrast to the toddlers of the Singapore REIT space.

Smaller REITs don't have that luxury. When the cost of debt goes up, they feel it more acutely. That's why higher yields often come with higher risk. You're being compensated for greater sensitivity to refinancing risk, tenant concentration, or sector-specific challenges.

This also explains why, in a falling interest rate environment, large REITs don't necessarily offer the biggest upside in yield terms.

Investors have already priced in a lot of the safety that they offer. What investors do like, though, is the stability and predictability across cycles. Remember, a lot of the smaller REITs

Singapore Dollar strength is an invisible headwind

One factor many REIT investors in Singapore underestimate (or might not even consider), until it hits their distributions, is the strength of the Singapore Dollar.

Many Singapore REITs own assets overseas and tenants in those properties-whether they're occupying data centres in Europe or offices in Japan — are NOT paying their rent in SGD. Obviously, rentals are paid in the local currency.

Geographic diversification is all well and good until reality sinks in because currency movements can quietly erode profits for REITs.

With a strong Singapore Dollar, that's happened in the past 12-24 months or so. Overseas rental income, when it's converted back into SGD, doesn't stretch as far as it used to.

So even if a REIT's overseas properties are performing well, the reported distribution in SGD terms may be underwhelming.

Some REITs might hedge their currency exposure, but hedging isn't a free lunch, and it can be pricey. It doesn't make these REITs "no-go" investments, but it does mean you need to consider currency when buying any REIT here.

Not all REIT sectors are created equal

Alright, we've covered interest rates and currency, so now let's dig into the actual real estate businesses of the REITs themselves, because that's (kind of!) important.

One of the biggest mistakes investors make is treating Singapore REITs as a single asset class because individual REITs (just like stocks) can be so, so different.

Different REIT sectors behave very differently depending on things like property demand, tenant quality, and pricing power.

Data centre REITs, for example, are "hot" right now, and they continue to enjoy strong structural tailwinds given the demands for digital infrastructure on the back of Artificial Intelligence (AI) workloads and cloud computing.

Well-located, well-run data centres can often push through rental increases, even in uncertain economic environments but there's a trade-off (duh) because these REITs tend to be pricey. They also trade at lower yields because the market is willing to pay up for growth and resilience.

Healthcare REITs sit in a similar category. An ageing population, long-term leases, and relatively inelastic demand give these REITs a degree of defensiveness.

Industrial and logistics REITs are more of a mixed bag. Some REITs benefit from e-commerce and supply chain reconfiguration, with solid properties, while others (particularly ones with a lot of China properties) are continuing to post a falling distribution per unit (DPU).

This sector divergence means catch-all phrases like "REITs are cheap" or "REITs are back" don't tell us the full story.

So, are Singapore REITs worth buying now?

The honest answer is that it really depends on all the factors above. Obviously, we'd like to invest in a Singapore REIT that only takes in rent in Singapore Dollars, has super cheap debt, rents out cutting-edge AI-focused data centres, and pays a yummy yield that's north of six per cent… but there are always trade-offs when investing.

Like life, we can't always get what we want. Certain Singapore REITs do have strong tailwinds, and lower interest rates will help many of them, eventually.

At the same time, a lower-rate environment is not a miracle growth driver. It doesn't automatically reverse years of higher financing costs, currency headwinds, or sector-specific challenges.

What's going to separate the "winners" from the "losers" in the REIT space in future will be the quality of assets and execution.

In other words, which REITs can grow their underlying profits, maintain or increase distributions, and keep debt costs under control? Which management teams are disciplined about acquisitions and capital management? In that sense, it's really no different from any other time.

For income-focused investors, Singapore REITs can still play a role in a diversified portfolio. Just don't treat them as a one-size-fits-all solution or assume the past year's strong performance guarantees you're going to be chillin' and taking in rising distributions for the next few years.

In the end, buying Singapore REITs in 2026 isn't about chasing the highest yield or betting blindly on rate cuts but focusing on quality and size.

[[nid:727687]]

This article was first published in MoneySmart.