The Investing Iguana Dives into REITs: A New Horizon for Investors in 202 Hey, everyone! Welcome back to The Investing Iguana, the show where we explore the fascinating world of personal finance, investing, and retirement planning. I'm your host, Iggy, and today were going to talk about one of my favorite types of investments: REITs. In this episode, I will be sharing on why I think the time is ripe to get back into buying Singapore REITS again. Are REITs Still a Good Investment in a Rising Interest Rate Environment? REITs, or real estate investment trusts, are companies that own and operate income-producing properties, such as office buildings, shopping malls, hotels, warehouses, and more. REITs allow investors to own a slice of these properties and receive regular dividends from the rental income. Sounds awesome, right? Well, not so fast. REITs are not without their risks and challenges. In fact, I have been bearish on REITs for most of 2022 due to one major factor: rising interest rates. As you may know, interest rates have a significant impact on REIT valuations. When interest rates go up, the cost of borrowing goes up for REITs, which reduces their profitability and cash flow. Also, when interest rates go up, the opportunity cost of investing in REITs goes up as well. Investors may prefer to invest in safer assets that offer higher returns, such as bonds or bank deposits. This is why REIT prices have been falling in 2022, as the Fed has been hiking interest rates to combat inflation. Many REITs have seen their share prices drop by 10%, 20%, or even 30% from their highs in 2021. Why I'm Buying REITs AgainBut here’s the thing: I think the worst is over. I think we have reached the peak of interest rates and that REIT valuations have come down significantly. As a result, I am now buying REITs again, with a focus on those that pay high dividend yields (7% or more). Why am I doing this? Well, there are several reasons. First of all, I believe that the Fed will stop hiking interest rates in the near future, as inflation starts to come down. Inflation has been driven by supply chain disruptions, labor shortages, and pent-up demand due to the pandemic. But these factors are likely to ease in 2023, as the global economy recovers and normalizes. Global Economy to Experience Growth Slowdown in 2023Secondly, I believe that economic growth will slow in 2023, which will put downward pressure on interest rates. The stimulus measures that boosted growth in 2021 and 2022 will fade away, and the fiscal and monetary policies will become less accommodative. This will lead to lower consumer spending, business investment, and GDP growth. As interest rates fall, REIT valuations will likely recover, which will boost the prices of REITs. This will create capital appreciation potential for REIT investors. I believe that the global economy will experience a slowdown in growth in 2023, due to a number of factors, including the withdrawal of fiscal and monetary stimulus, the ongoing war in Ukraine, and rising inflation. This slowdown will put downward pressure on interest rates, as central banks will be less inclined to raise rates in order to combat inflation. This will be a positive development for real estate investment trusts (REITs), as lower interest rates will make REITs more attractive to investors. Impact of Slowdown on Businesses and InvestorsThe US government and other governments around the world have implemented a number of fiscal and monetary stimulus measures in response to the COVID-19 pandemic. These measures have helped to support economic growth, but they are now being withdrawn. This will lead to a reduction in government spending and a tightening of monetary policy, which will slow economic growth. The war in Ukraine is causing a number of economic disruptions, including rising energy prices and supply chain disruptions. These disruptions will weigh on economic growth in both Europe and the United States. Inflation is rising in many countries, due to a number of factors, including supply chain disruptions and the war in Ukraine. Rising inflation will force central banks to raise interest rates, which will also slow economic growth. The slowdown in economic growth in 2023 will be a negative development for some businesses and investors. However, it will be a positive development for REITs, as lower interest rates will make REITs more attractive to investors. REITs are companies that own and operate income-producing real estate. When interest rates fall, the cost of borrowing money for REITs also falls, which can lead to higher profits. In addition, lower interest rates can make REITs more attractive to investors who are looking for income-producing assets. A Steady Stream of Income in a Low-Interest Rate Environment Thirdly, I am attracted to the high dividend yields of REITs. REITs are required to pay out at least 90% of their taxable income as dividends, which provides investors with a steady stream of income. This is especially appealing in a low-interest rate environment, where other income sources are scarce. Some of the REITs that I am buying have dividend yields of 7%, 8%, or even 9%. That means that for every $1000 that I invest in these REITs, I get $70, $80, or $90 in dividends every year. That’s a pretty sweet deal! Of course, dividend yield is not everything. You also have to look at the quality of the REITs’ properties, their occupancy rates, their rental growth prospects, their debt levels, their payout ratios, and their dividend sustainability. But overall, I believe that REITs can still provide attractive income and capital growth potential even in a rising interest rate environment. 6% or More Dividend Yield Singapore REITsHere are a few Singapore REITs that are giving 6% or more dividend yield as of August 2023:
It is important to note that dividend yields can fluctuate, so it is always best to do your own research before investing in any REIT. ConclusionSo there you have it: why I am buying REITs again at 7% dividend yields (as a Singapore investor in 2023). If you want to learn more about this topic or read the original article by Financial Horse that inspired this video, you can check out the link in the description below. I hope you enjoyed this video and learned something new today. If you did, please give it a thumbs up and share it with your friends and family who might be interested in investing in REITs. Also, don’t forget to subscribe to my channel and hit the bell icon to get notified whenever I post new videos on personal finance, investing, and retirement planning. And finally, let me know what you think about REITs in the comments section below. Do you agree or disagree with my views? Do you own any REITs or plan to buy any soon? What are your favorite REITs and why? I would love to hear from you and have a conversation with you. Thank you so much for watching and I’ll see you in the next episode of “The Investing Iguana”. Until then, stay safe, stay smart, and stay invested. Cheers!
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