Pick cheap developer shares over risky REIT stocks in 2015

REITs will suffer once interest rates rise.

Smart investors should pick cheap developer stocks over risky REIT shares in 2015. According to UOB Kay Hian, the property sector will benefit once property prices stabilize, but REITs are at risk once interest rates rise.

The report notes that developer share prices could re-rate once there are indications that property prices are unlikely to correct more than 10-15% on average.

“We think investors have over-discounted the expected fall in physical residential property prices (of up to 40-50%) as share price discounts to RNAVs have expanded to 41%,” the report noted.

However, S-REITs might not fare well once the US Fed hikes its rates. UOB Kay Hian notes that investors should focus instead on office and hospitality REITS and stay cautious of industrial REITs.