Demand more from REITs as investors.

The catalyst for this blog is a comment from a viewer of my YouTube channel.

The viewer said:

"... older video says you did not lose playing reit. need your help man. it is starting to feel a bit strange already."

In reply to that, I said:

"I made a lot of money investing in REITs but that was during the 15 years when interest rates were almost zero. Things different already."

We must realize that things have changed.

I blogged about how I made more than $2 million investing for income and that was from passive income received alone.

$2 million in passive income.

Sunday, January 8, 2023

https://singaporeanstocksinvestor.blogspot.com/2023/01/2-million-in-passive-income-if-ak-can.html

It did not include any capital gains made over the years.

I can safely say that more than half of that $2 million in passive income was from REITs.

If we take into account capital gains from voluntary and involuntary sale of REITs in those 15 years, I have made a lot more money from investing in REITs.

For an average Singaporean like me, that is a lot of money.

It has definitely helped me to achieve F.I.R.E. more comfortably.

However, like I said, things are different already.

In many blogs I published and videos I produced in the last year or so, I said as much.

Rapid and significant increases in interest rates have thrown a spanner in the works for REITs.

Indeed, they have had the same effect on all risk assets and not just REITs.

In an environment where risk free rate is 5% or more, Mr. Market is right to demand more from REITs.

This means yield has to expand, all else being equal.

I made videos on this and I am including them here for people who do not follow me on YouTube:

If a REIT was yielding 5% when risk free rate was almost zero, now, it should yield 10% or so in order to be attractive.

In Singapore, if we take the recent Singapore Savings Bond which offered 3.33% p.a. 10 year average yield, a REIT which offered 5% distribution yield in the past should offer 8.33% today to be attractive, all else being equal.

This is just something to bear in mind and might not be an ironclad rule to follow, for people who still believe in REITs as viable investments for income.

However, it is simply sensible to use this yardstick, I believe.

Anyway, I get the feeling that people are still not as demanding as they should logically be when investing in REITs today.

Many are investing with the idea that interest rates might be rapidly cut from 2H 2024.

Investors who only started investing during the years of very low interest rates might even think that interest rate cuts means a return to the post Global Financial Crisis low interest rate environment which lasted 15 years or so.

Investing in REITs today with such a belief could lead to disappointment.

Bearing this in mind, I also made a couple of videos on IREIT Global before:

Finally, AK is losing money investing in a REIT.

This might make some people cackle with glee.

To me, this is just another example that I am not always right.

It is only paper loss right now but who knows how things would pan out?

Of course, we must not forget that AK is also losing money in another REIT, CapitaLand China Trust.

Things are different now and this is why I have been saying that I am not adding to my investments in REITs in the current environment.

Why do DBS, OCBC and UOB together form more than 40% of my portfolio today?

If AK can talk to himself, so can you.