Post by oldman on Oct 19, 2013 8:57:33 GMT 7
Musicwhiz, I share the same sentiments. I will only consider buying REITS after the market has tanked. Those REITS that are heavily leverage will face significant downward pressure when the property market tanks and this is when bargains will appear. I don't buy REITS for their yields but for the property recovery prospects following a significant market downturn.
I will certainly not buy any REITS now as I am not optimistic on the property market. When the property market collapses, the price of the REITS will fall. But as most REITS are highly geared, the price correction may be significantly more as the viability of some REITS may be in question when the property market falls.
Whatever benefits one gets with a high yield may not look as attractive anymore when the share price of the REITS collapses. REITS may not be as safe an investment as we are led to belief.
Generally, be careful of any investments that are heavily geared because gearing is a double edged sword. If you guess the direction of the market correctly, you can make good money. If you invest in a highly geared company and guessed the direction wrongly, you can lose a significant part or even all of your capital.
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Musicwhiz wrote:
My views - REITs are offering a levered yield, are subject to the vagaries of the Property Cycle, and are heavily influenced by interest rates as most of them are geared.
Currently, REITs are popular due to the low interest rate environment, but these are not "normal" companies in a sense, they are leveraging on low interest rates in order to purchase assets with a higher yield, essentially making on the spread and paying out part of the difference as dividends, while using another portion to repay debts.
If there is a downturn and over-supply returns due to tenants shifting out of Singapore, rental yields could fall. This, coupled with higher interest rates, would squeeze REITs which are trying to refinance.
This is why I avoid investing in REITs, except for a "sentimental" stake in Suntec REIT during IPO back in Dec 2004. :lol:
I will certainly not buy any REITS now as I am not optimistic on the property market. When the property market collapses, the price of the REITS will fall. But as most REITS are highly geared, the price correction may be significantly more as the viability of some REITS may be in question when the property market falls.
Whatever benefits one gets with a high yield may not look as attractive anymore when the share price of the REITS collapses. REITS may not be as safe an investment as we are led to belief.
Generally, be careful of any investments that are heavily geared because gearing is a double edged sword. If you guess the direction of the market correctly, you can make good money. If you invest in a highly geared company and guessed the direction wrongly, you can lose a significant part or even all of your capital.
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Musicwhiz wrote:
My views - REITs are offering a levered yield, are subject to the vagaries of the Property Cycle, and are heavily influenced by interest rates as most of them are geared.
Currently, REITs are popular due to the low interest rate environment, but these are not "normal" companies in a sense, they are leveraging on low interest rates in order to purchase assets with a higher yield, essentially making on the spread and paying out part of the difference as dividends, while using another portion to repay debts.
If there is a downturn and over-supply returns due to tenants shifting out of Singapore, rental yields could fall. This, coupled with higher interest rates, would squeeze REITs which are trying to refinance.
This is why I avoid investing in REITs, except for a "sentimental" stake in Suntec REIT during IPO back in Dec 2004. :lol:
