Are Reits worth considering when rates rise?
A Reit's performance is influenced by two factors: the prevailing credit conditions and the state of the economy
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WITH interest rates on the way up, an argument can be made for avoiding Real Estate Investment Trusts or Reits. After all, why opt for a distribution that is not certain, when it is possible to get a guaranteed return from money in the bank. Right now, it is possible to earn around 1 per cent on US dollar deposits. And if market estimates are right, another six interest rate hikes by the end of 2019 could lift deposit rates to 2.5 per cent.
However, that enticing interest rate would still be less attractive than the average yields on Singapore and Malaysian Reits of about 6 per cent, even though the payouts could be risker.
The question is whether the juice is worth the squeeze. Put another way, is the premium worth the risk?
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