Why buy Singapore office, retail assets for yields below borrowing costs?

OVER the past 18 months, much attention in Singapore and globally has focused on the rise in interest rates.

The US Federal Reserve started hiking interest rates in mid-March 2022 to combat rising inflation. Commercial property in the US has felt the pain of higher interest rates. Capitalisation rates used to value various buildings expanded, causing massive falls in values.

The capitalisation rate captures the annual return an investor expects from an investment. In the income capitalisation method used to value properties, a property’s value may be derived by dividing the assumed net property income (NPI) by its capitalisation rate.