Buy the businesses that hold the real-estate assets rather than the ones that sell them.
That’s the message from a growing number of analysts in Singapore who say REITs, or real estate investment trusts, are a better bet than developers in light of the island’s recent cooling measures.
For much of 2017 and the first half of this year, Singapore developer stocks had a great run. Rising home prices and climbing sales were among signs the city-state’s residential market was emerging from a deep freeze. That all changed on July 5, when the government shocked the industry by imposing a fresh set of curbs that came into effect at midnight the following day.
Now, the trade has reversed. The FTSE Straits Times REIT Index is outperforming a benchmark that tracks developers. Property stocks, which had their best annual gain in five years in 2017, have declined 5.4 percent since July 5, while REITs are up 1 percent over the same period.
“There’s been a lack of interest in developer stocks post the cooling measures and some of that capital has moved out to other sectors,” Vijay Natarajan, an analyst at RHB Research Institute Singapore Pte, said.
“The market had not expected the severity of the measures announced.” Singapore took renewed steps to cool home prices after they rose more than 7 percent.