Growth-led inflation a boon to Reits: Expert

Published on Apr 14, 2013

Fund manager: Their popularity reflects strong property market fundamentals

By Chia Yan Min

Real estate investment trusts (Reits) in Singapore and the region will keep doing well in an environment of growth-led inflation.

The recent popularity of Reits here reflects strong property market fundamentals, said Mr Patrick Sumner, head of property equities at Henderson Global Investors, in an interview with The Sunday Times.

He expects this positive picture to continue.

"Reits tend to do pretty well during periods of inflation, and will continue to do well in a growing economy where inflation is led by growth," he said.

Reits are funds that operate in a similar manner to unit trusts. But unlike unit trusts, which invest in shares, Reits specialise in income-generating real estate assets such as shopping malls, offices and industrial buildings.

They have become a sought-after investment in the current low-interest rate environment, with the additional lure of high dividend payouts.

While Singapore is "quite a volatile market" for Reits, Mr Sumner said the average dividend yield of 5.5 per cent "fairly reflects the underlying risk in real estate, and the prospective growth".

The veteran fund manager, whose team has US$2.3 billion (S$2.9 billion) in assets under management globally, added that Singapore Reits are still valuable relative to other asset classes.

"The spread of as much as 4.5 percentage points versus government bonds is an all-time high, and this gives investors quite a lot of comfort," he said.

He offered a bullish outlook for global property markets.

Low interest rates - a result of central bank policymaking - have fuelled the residential property boom in markets such as Singapore, Hong Kong and mainland China, he noted.

Property cooling measures introduced in these markets have had limited success given rising incomes and strong economic growth, he said.

"In China, there will continue to be very strong demand... most of the transactions are real ones, that is, first homes or trading up," said Mr Sumner.

He added that until the market cools, more property curbs are likely to be on the way for the Chinese market.

The United States market also appears to be staging a comeback, with strong rates of growth in apartment rentals, he said.

Retail sales have been boosted by a recovering housing market, and "the consumer environment remains healthy" for larger retailers.

"The US is in many respects our favourite market, and Reits are in good shape," he said.

Mr Sumner, who is based in London, was in Singapore last week for the launch of Henderson Global Investors' new property fund, targeted at retail investors.

The Henderson Global Property Income Fund, domiciled in Singapore, aims to deliver a return of 10 to 12 per cent a year, half of that from dividends and the other half from capital gains.

The fund will primarily comprise Reits, but will also include a range of listed property securities from around the world. Singapore Reits will make up about a quarter of the fund.

"We want to give Singaporean investors something they are familiar with," he said.

Henderson is working with AIA Singapore and GYC Financial Advisory as its anchor distributors.
"People want investment income that they can't get from cash and bond yields... if they want a diversified portfolio, Reits are, in our view, one of the most efficient ways of doing it."

chiaym@sph.com.sg