Here’s why REITs make great choices as market jitters escalate

They offer the best of worlds, analysts say.

The past few weeks have been a painful time for Singapore-listed REITs, but now might be a good time to re-look at these investment options.

On average, share prices of SREITs have dipped by 22% from their recent highs, amid mounting concerns about interest rate hikes, disinflationary pressure from dropping oil prices and a slowing Chinese economy affecting global growth.

According to UOB Kay Hian, REITs now offer a "very attractive" risk-reward opportunity after the sharp sell-down.

"The current sell-down of S-REITs has led to a tantalising 4.4% yield spread over 10Y SGS, in comparison to an upcycle average of 2.8%. We believe REITs are ideal in the current volatile market environment as they can be seen as a hybrid of debt and equity. Expect debt-like stable yield income during the down markets and equity-like capital appreciation during upmarket cycle," said the report.

UOB Kay Hian also expects the US Federal Reserve to delay rate hikes as signs of economic growth are not yet very clear.

“With rising expectations of a delay in interest rate hike in the US, this will benefit REITs in the near term as investors chase yields. In the medium term when interest rates are raised eventually, REITs will transit from being viewed as yield vehicle to growth vehicle, and will continue to see interest,” the report said.