For the past two years, Singapore investors have been conditioned to think one way:banks win when interest rates rise, and REITs suffer.
That logic played out clearly. The big three local banks delivered record earnings, while many S-REITs struggled under rising borrowing costs, falling valuations, and cautious investor sentiment.
But markets are forward-looking — and the narrative is beginning to shift.
As interest rates show signs of peaking and edging lower, analysts are increasingly pointing to a new possibility: S-REITs may outperform Singapore’s banking trio in upcoming quarters, starting with Q4 results.
This doesn’t mean banks are suddenly unattractive. It does mean the risk-reward balance is changing, especially for retail investors focused on income, stability, and long-term returns.
Let’s explore why this matters — and what Singapore investors can realistically do about it.
Insight 1: Lower interest rates change the maths for S-REITs, not just the mood
Most retail investors understand the surface-level relationship between rates and REITs. But the deeper impact is often underestimated.
Borrowing costs stop rising — and that matters more than rate cuts themselves
S-REITs operate with significant debt. Over the last two years, refinancing became increasingly expensive, eating into distributable income.
When rates stop rising, two things happen:
- Cost uncertainty reduces
- Cash flow planning improves
Even if interest rates don’t fall sharply, stability alone allows REIT managers to plan distributions, asset enhancement, and acquisitions more confidently.
Singapore analogy:
Think of a family servicing a home loan. When mortgage rates stop climbing, they may not feel richer — but the anxiety eases. That stability changes spending and planning behaviour. The same applies to REITs.
Yield comparisons start to favour S-REITs again
When fixed deposits were offering 3.5–4%, many investors shifted funds away from REITs. The opportunity cost was simply too high.
But if rates ease:
- Fixed deposit yields decline
- Bond yields soften
- REIT distributions look attractive again
A diversified S-REIT yielding 5–6% begins to stand out — particularly for retirees, pre-retirees, or anyone relying on regular income.
Property valuations stabilise, reducing balance-sheet stress
Higher interest rates previously pushed down property valuations, raising gearing ratios across the sector.
Lower rates help by:
- Supporting asset values
- Improving loan-to-value ratios
- Making refinancing and capital management easier
This doesn’t mean valuations surge — but the downward spiral stops, which is often enough for sentiment to recover.
Insight 2: Not all S-REITs will benefit equally — quality still wins
A common mistake among retail investors is assuming all REITs move together. In reality, sector exposure and balance-sheet discipline matter more than ever.
Office REITs: Less dramatic than headlines suggest
Work-from-home concerns sparked fears of long-term office decline. But Singapore’s office market is structurally different from many Western cities.
Grade-A CBD offices remain relevant for:
- Financial institutions
- Legal and professional services
- Regional headquarters
Supply remains limited, and tenants are selective rather than absent.
Local reality check:
Walk through Raffles Place or Marina Bay on a weekday. Offices aren’t empty — companies are simply optimising space.
Office REITs with:
- Prime locations
- Strong tenant profiles
- Disciplined capital management
are better positioned to stabilise rents and occupancy.
Industrial and logistics REITs: Quiet resilience
Industrial REITs don’t grab headlines, but they form the backbone of many portfolios.
Singapore’s role as:
- A logistics hub
- A data-centre location
- A manufacturing and innovation base
supports steady demand.
These REITs resemble a neighbourhood kopitiam — not flashy, but dependable. For income investors, predictability is a feature, not a flaw.
What retail investors should actually look at
Instead of chasing headline yields, investors should focus on:
- Debt maturity profiles
REITs with staggered maturities face less refinancing risk. - Sponsor support
Strong sponsors can provide asset pipelines, funding support, and credibility. - Occupancy and rental reversions
Stable or improving numbers matter more than optimistic projections. - Distribution sustainability
A slightly lower yield that’s stable beats a high yield that gets cut.
A 7% yield that drops to 5% is not superior to a 5.5% yield that holds steady.
Insight 3: Banks remain strong — but expectations should reset
Singapore banks are still high-quality institutions. That hasn’t changed.
What has changed is where we are in the interest-rate cycle.
Net interest margins are likely near their peak
As interest rates fall:
- Loan yields adjust downward
- Deposit competition limits cost reductions
- Margins compress gradually
This doesn’t imply falling profits — just slower growth.
Loan growth is stable, not booming
There’s no credit frenzy:
- Housing loans are steady
- Corporate borrowing remains cautious
- Consumer credit growth is controlled
Banks continue to generate strong cash flows, but the exceptional tailwinds of recent years are fading.
What this means for portfolio decisions
For retail investors choosing between adding bank stocks or S-REITs today:
- Banks offer stability and dividends
- S-REITs may offer greater upside from improving conditions
It’s not about switching sides — it’s about rebalancing expectations.
Practical Takeaways for Singapore Retail Investors
If you rely on income
S-REITs may become more attractive as:
- Interest costs stabilise
- Distribution pressure eases
- Yield spreads widen again
Focus on REITs that have already navigated the toughest part of the cycle.
If you’re building long-term wealth
Consider balance:
- Banks for stability
- REITs for income and diversification
Reinvesting REIT distributions during periods of recovery can meaningfully compound returns over time.
If you’re holding excess cash
Instead of waiting for perfect clarity, consider phased entry.
Markets often price recovery before economic data confirms it. Gradual investing reduces timing risk and emotional stress.
The Bigger Picture: This Is a Reset, Not a Rally
This isn’t about S-REITs “booming” overnight.
It’s about:
- More realistic valuations
- Normalising interest rates
- A return to fundamentals
For patient retail investors, these periods often present quiet opportunities rather than loud signals.
When rates fall, rents start speaking again — and in Singapore, that conversation matters.