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Scared of Inflation? Here’s Why You Should Buy Singapore REITs

Inflation high investing

Tim Phillips

April 14, 2022

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As investors, we’re bombarded with the headlines every single day. “Inflation at Multi-Decade Highs”. “Energy Costs Surge on Back of Russia-Ukraine War”.

Inflation is here and it’s not going anywhere in the immediate future. So how should investors – based in Singapore – approach what they buy for their portfolios?

Obviously, we should always focus on the long term when we invest. However, there are also steps we can take to both diversify and protect our portfolios during periods of structural change.

In times like these (of high inflation), it might be surprising to hear me say that Singapore real estate investment trusts (REITs) are actually a great way to protect your portfolio from inflation. Here’s why.

Buying real, physical assets

As I’ve written about previously, while low interest rates are obviously a boon for REITs, higher rates do not necessarily spell disaster.

That’s because investors are buying a piece of real assets when they purchase a REIT’s units. Physical property will still be in demand in an inflationary environment.

With that continued demand and amid rising prices, rents (as well as property values) will also likely increase at least in line with inflation.

Additionally, REITs possess a consistent, as well as long, track record of outperforming alternative asset classes during periods of high inflation (see below).

While this data came from the US (given the relative short history of the Singapore REIT market), there are still lessons we can draw.

That’s because, as I outlined in my REITs presentation in the video above, Singapore-listed REITs and their property portfolios are now global in nature.

REITs inflation hedge

Source: CNBC

Pricing power and dividends

When facing down inflation, we also have to be conscious of whether the companies, or REITs, we own have pricing power.

In the case of REITs, or at least the bigger ones in Singapore, they should expect to have this in spades given their scale and global portfolios.

Finally, we also should note that dividends – particularly in times of uncertainty – can provide a buffer against market volatility. That’s mainly down to the fact that stable cash flows will be more valuable.

Diversifying into REITs

For older investors who may have a larger allocation to REITs, staying invested in the sector here makes sense.

However, for younger investors who may still have 20-30 years of investing ahead of them, it never hurts to diversify.

They can consider REITs as one of the best ways to offer some stability in your portfolio amid high inflation.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.