Are SGX-listed Overseas REITs a better Value Proposition than SGX Listed Local REITs as Investments?

The below post posts is solely for informational purposes and not to be construed as a solicitation or financial advice as I am not a certified financial adviser. Below is my analysis on the current world situation and I encourage readers to do your own "due diligence" before investing in asset classes overseas.

Recently, a few have asked me on the observation where SGX listed overseas REITs are giving higher dividend yields than the SGX Listed local REITs.

The difference in yields is surprisingly wide. For example, the supposedly lowest US office REIT (Keppel Pacific Oak is expected to give a dividend yield of 15%). Below is a comparison of the same REIT sector but in different countries:

a) Keppel Pacific Oak (US Office Space) - 15.5%

b) Keppel REIT (Singapore Office Space)- 6.8%

c) Elite Commercial REIT (United Kingdom Office Space)- 12%

Why is it Happening?

There are two reasons:

1) Resilience of Singapore Property Sector

Unlike UK and US which has a large office supply glut, Singapore's office oversupply is at the low of 11.4% (as of URA latest stats end 2022)

2) Risk Free Rate in Other Countries are much Higher

Unlike what our economics textbook teaches, Singapore is not a taker of global interest rates (this violate the economic principle of the economic unholy trinity, Singapore has a semi fixed foreign exchange rate system which fluctutates within a policy band*)

In USA, the risk free rate is at 4.75%; in the UK, it is 4.25%. While Singapore's SORA is currently at 3.77%. Do note, the SORA rate in Singapore will be slightly above the offical risk free rate. 

Is Something Amiss?

In my opinion, 2) is a bit off and therefore, I do sense Singapore's risk free (and SORA) rate will start to climb higher. My expectations is that SORA rates will increase from 3.77% to about 4.75%, in in line with the UK's and USA's. This will mean investors will demand higher returns for our local REITs. In short, a negative downward pricing for our local REITs.

Strong SGD

Lastly, I have observed the Singapore Dollar has been unusally strong with the continous strengthening of the Sing Dollar band. My view is that it is a good time to buy overseas shares/assets given this. 

Conclusion

To summarise I do feel the SGX-Listed overseas REITs are of a better value proposition than the local REITs.

With the supposedly higher risk free rates demanded overseas, the prospect of investing overseas (not just in overseas REIT) is better than Singapore's. In addition with the strong Sing Dollar exchange rate, I am evaluating investments overseas.

New companies I am looking to invest in are those in the HK or US market where the Sing dollar is exceptionally strong against and where the risk free rate is a lot higher than ours. It seems to be a good time for Singapore investors to invest abroad and not locally due to the abnormally low risk free rate which will adversely affect returns.