GLOBAL - Singapore REITs will remain stable over the next 12-18 months despite potential challenges from new supply and interest rate rises, according to ratings agency Moody's.
Moody's analyst Alvin Tan credited most rated S-REITs with a stable outlook based on continued growth that would result in increased rental and low vacancy rates.
The most likely of unlikely threats would come from a combination of slower macro growth combined with significant new supply, which would reduce the rental growth rate.
A sovereign debt crisis, or inflationary pressure on the region, could force a tightening of monetary policy that would reduce the scope of domestic demand to absorb new supply.
Strong market liquidity and well-capitalised balance sheets to fund acquisitive growth strategies this year made leveraging beyond 45% unlikely. However, interest rate rises could increase the costs of acquisition.
REITs offer one of the few routes for cross-border real estate investment in the Singapore market.
Peter Martin of consultancy JLT, which has advised the £4.7bn (€5.3bn) Merseyside local authority pension fund on investing in Asian real estate, said: "You have to be aware that some Asian markets might be only accessible through REITs. That's why there has been a trend over several years with Asian funds of funds to go for REIT exposure."
Nigel Almond, associate director of forecasting and strategy at DTZ, forecast the pro-Asian trend would continue.
"We've seen a big increase in the capital targeting Asia - $104bn () this year - 45% up from 2010," he said.
"It isn't surprising. Judged by a fair value index, it's relatively more attractive, even if the US is more attractive overall."
Asian investors raised 92% of capital targeting the region.