Chart of the Day: REITs under threat as Singapore dollar crumbles

Local property prices are tied to SGD strength.

Analysts fear that the net asset value (NAV) of Singapore-listed real estate investment trusts will be dragged down by the depreciating SGD.

This chart from RHB Research shows that Singapore property prices have a 90% correlation with the strength of the Singapore dollar versus the greenback.

RHB fears that property valuations might take a hit due to the possible recalibration of asset prices, which have been inflated by years of easy money.

“We are already seeing Industrial REITs reporting revaluation losses for some of their properties in the ongoing results season. Following three quarters of consecutive declines in office rentals in the Central Area, according to the Urban Redevelopment Authority (URA), we expect the physical prices of office assets to follow suit,” RHB says.

RHB expects the SGD to weaken against the USD as a result of the US interest rate hiking cycle. At the current level, RHB expects the currency to bottom out around mid-year to 1.46 against USD before recovering to 1.43 towards the year end.

RHB warns investors to be highly selective when it comes to picking REIT stocks, and says that investors should stick with REITs which are supported by reisilient valuations and quality assets.