Now is the time to snap up cheap S-REIT stocks, says BNP Paribas

Interest rate hike fears are waning.

Singapore-listed REITs suffered heavy losses when it first appeared that the US Federal Reserve will finally hike interest rates. Investors dumped S-REIT stocks in fear that higher borrowing costs will dampen profitability.

But as interest rate normalisation fears wane, analysts at BNP Paribas believe that an investment opportunity has emerged in beaten-down REIT stocks.

“We are entering a period of investment opportunity for S-REIT stocks, given a pause in the rate-hike cycle With the market being over bearish on S-REIT in 2015 on the back of rate-hike expectations, we believe later-than-expected rate normalization could help boost S-REIT sentiment,” said the report.

BNP Paribas believes that there will be no further rate hikes in 2016 and 2017, despite the US Fed’s initial goal of having four rate hikes this year.

“S-REIT sector continues to face challenges in leasing activities and rising supply. We continue to prefer S-REITs with exposure to retail (suburban), given moderate supply pipeline, and best track record of DPU growth through cycles,” BNP Paribas said.