It has been a bumpy ride for Singapore REIT investors. The FTSE REIT index has been in a bear market for more than 2 years. Year to date has not been pretty too with the FTSE index down 1.93%.
Many bloggers and analysts are still advocating investors to buy REITs. However, they will be proven wrong. In this article, I will talk about 3 reasons why you should not buy REITs
Trump Tariffs
US President, Donald Trump has been imposing tariffs on China, Mexico and Canada. China has retaliated by imposing tariffs on certain US agriculture products. Tariffs is a very blunt measure to raise revenue for the government.
However, tariffs will have negative impact on the economy. Higher tariffs usually result in higher prices for consumers and a higher cost of living. In addition, higher tariffs will also lead to the US being less competitive as more consumers will be forced use locally made products and thus leading to lower productivity.
In fact one of the primary reason for the great depression of 1929 was due to high tariffs. Once US enter into a stagflation period like the 1970s, the FED has no choice but to maintain high interest rates.
Hence, do not be misled by bloggers who keep advocating on buying REITs. It is imperative that investors do their due diligence and study the macro picture. With high interest rates, REITs will suffer from falling DPU and depressed share price. The dividends collected will not even cover the capital loss.
Consequently, with the US imposing tariffs, it will definitely one of the 3 reasons why you should not buy REITs.
Foreign investors dumping US treasuries
A number of countries have been selling US treasury securities recently.
From the table, you can see the top 2 holders of US treasury securities are Japan and China. However, both countries have been selling their holdings. UK who is the third largest holder started selling recently. You may wish to see the website here.
This will impact US treasury yield. In fact, you will notice that the 10 year US treasury has been persistently above 4%. As mentioned many times in my article, with high US treasury yield, it will lead to higher borrowing costs and lower DPU for REITs.
Many bloggers ignore this metric on determining whether to buy REITs. However, it is very important to monitor this closely as it will point to the direction of the US treasury yield.
Hence, this is definitely one of the 3 reasons why you should not buy REITs.
US enters a recession
In February 2025, private sector employment in the US grew by just 77K, coming in short of initial estimates of 140K, according to the latest Automatic Data Processing (ADP) report. In addition, the reading was lower than January’s 186K.
In February 2025, US consumer confidence was at its lowest level since June 2024, according to the Conference Board. The decline was the largest since August 2021. The Conference Board’s Consumer Confidence Index fell to 98.3, down from 105.3 in January.Â
Consumer spending is a major driver of US economy. With lower private sector employment and with the US government cutting many government jobs, it will inadvertently lead to lower consumer confidence and lesser consumer spending.
As a result, US will most likely enters a recession after August this year. Once US is in recession, Singapore being an open economy will be affected. In such a scenario, it may lead to negative rental reversion for REITs. With negative rental reversion, REITs DPU will be affected resulting in lower share price.
Investors need to be aware that investing in REITs is not just for income only. The REIT share price should rise steadily over time or at least remain stable. If REITs share price remain depressed, the dividends collected will not be able to cover the capital loss.
Disclaimer: Please note that the information provided in this article is not a financial recommendation to buy and investors need to do their own research and due diligence before investing in REITs
