Hey fellow REIT investors! What a rollercoaster this past week has been for REITs. If you’ve been watching the market, you’ll know that Singapore REITs just surged around 5% in one week, a sight we haven’t seen in a long time. After months, no, years, of sluggish performance, this kind of rally is enough to make any REIT investor sit up and pay attention.

Some of you might be thinking, ‘Uncle, you’re a bit late to the party: REITs were surging last week, where were you?’ Trust me, I heard it too. My buddy was nudging me, saying, ‘Eh, faster make a post to explain lah!’ But I deliberately held back. Why? Because I wanted to gather more data, watch how things unfold, and form a clearer perspective.

Now, something interesting is happening in the market, even as I’m drafting this post – does the rally seem to be losing some steam by Tuesday? And as much as I’d love for it to keep going up in a straight line, we all know markets don’t work that way. 

Because we’ve been here before. Just last year, in early 2024 and then again in September 2024, REITs showed signs of recovery. Interest rates seemed to be falling. Analysts were bullish. Investors were hopeful.

Both times, I invested big. And both times, we know what happened next: the rally fizzled out.

While it’s impossible to predict if this rally will sustain its momentum, I believe the recent surge – and its potential slowdown – has uncovered some key insights on how REITs may perform going forward, which could be more important than the “rally” itself. And let me tell you, I’ve got some rather controversial thoughts to share towards the end of this post. So stick around, because you won’t want to miss it.

Before we dive in, let me remind you that this post is for informational purposes only and not financial advice. Always do your own research and consult a licensed financial adviser before making any investment decisions. I own some of the REITs discussed, but what works for me might not work for you.

Alright, let’s get started!

REITs Surged… But Here’s What You Might Have Missed

For me, the excitement of the rally was bittersweet. The moment I saw prices spike, I immediately pulled up my portfolio to check my gains. And of course, my eyes zoomed straight to CapitaLand Integrated Commercial Trust or CICT, a REIT I had backed with my hard-earned money during its equity fundraising at around $2 per share for its historic ION Orchard acquisition. Back then, I told myself, “This is CICT, one of the best REITs in Singapore. Long-term, no worries!”

But let’s be real – until this week, that rights issue was mostly red in my portfolio. The conviction was there, but the market wasn’t showing me any love. So, when I finally saw CICT turning up last week, I high-fived my friends, did some quick math, and started feeling pretty good about things.

Quick Look at the Winners

The CSOP iEdge S-REIT Leaders ETF, soared more than 5% in just five days. Let’s take a look at some of the biggest movers last week. 

Frasers Centrepoint Trust surged almost 8% as concerns about the RTS link gave way to better DPU expectations with lower interest rates. Keppel DC REIT shot up more than 6% as investors jumped back into the data center theme.

And of course, CapitaLand Integrated Commercial Trust climbed 5.5%, finally giving some love to those of us who held through its equity fundraising last year.

3 Key Drivers Behind the REIT Rally

So, what’s fueling this surge? I think there are three major factors driving the rally, but before we dive in, remember the title of this post. While there’s plenty to celebrate, it’s just as important to stay grounded. I’ll break down these drivers now, but stick around, because in the next section, I’ll share why I’m keeping a cautious eye on this upturn.

1. Falling Interest Rates – The Biggest Driver

Let’s start with the most obvious factor: interest rates.

We’ve talked about this many times before: REITs are highly sensitive to interest rates because borrowing costs directly impact their distributions. And right now, rates are trending lower.

First, in the US, the 10-year Treasury yield has dropped significantly, now hovering around 4.3%, down from nearly 4.8% in mid-January. This decline has renewed investor confidence that the US Federal Reserve may cut rates later this year, even though there’s still uncertainty over how soon and how aggressively they’ll act. 

Closer to home, Singapore’s 10-year Government Securities yield has also fallen to around 2.6%, its lowest in five months. And here’s where things get interesting – while the US rates have been declining, Singapore’s SORA (or the Singapore Overnight Rate Average) has fallen even faster than usual compared to its historical relationship with US rates. Some analysts are saying that this bigger drop than usual is fueling even more excitement around REITs, as it signals potentially lower financing costs and a stronger push into yield plays.

And why does this matter?

Because when interest rates fall, it makes alternative investments less attractive compared to REITs.

Right now, the average yield of the S-REIT index is more than 6%, which is a massive 3.4% points above the yield of 10-year Singapore Government Securities. That’s a pretty compelling case for income-focused investors who had previously been sitting on the sidelines, waiting for the right time to re-enter the market.

And when you combine that with the fact that borrowing costs for REITs are likely to trend lower, it makes sense why investors are starting to take action.

2. US Recession Fears – Flight to Safety

While falling interest rates are the biggest driver of the REIT rally, the second reason is growing concerns over a potential US recession, which has investors looking for safer, income-generating assets like REITs.

Let’s talk about why recession fears are creeping in.

One of the biggest factors cited by analysts is the uncertainty surrounding trade tariffs. With new tariffs being imposed, many analysts are warning that this could slow down global economic growth. Tariffs increase costs for businesses, disrupt supply chains, and could eventually lead to weaker corporate earnings. And when businesses cut back on spending, it can trigger a broader slowdown in the economy.

But tariffs aren’t the only concern.

US stocks have recently entered correction territory, with the Nasdaq index dropping more than 10% from its recent peak. Just a few weeks ago, everything seemed fine – US stocks were at all-time highs, AI-driven stocks were charging ahead after fears of DeepSeek in China faded, and investors were confident that US markets would continue their winning streak from 2023 and 2024, when the S&P 500 was up more than 20% each year.

But this is how quickly market sentiment shifts.

Even after the recent dip, US stocks are still historically expensive. The Shiller PE Ratio for the S&P 500, which measures price relative to inflation-adjusted earnings, is at levels not seen in many years. When valuations are stretched, any shift in investor sentiment can lead to rapid sell-offs.

With all these concerns in mind, investors are seeking safety in defensive assets like bonds and yield plays such as REITs. This helps explain why we’re seeing strong inflows into REITs, as they offer both stability and attractive dividends in a time of rising uncertainty.

3. Analysts Suddenly Turning Bullish on REITs

And here’s something we haven’t seen in a while – analysts are now turning bullish on REITs.

Over the past week, we’ve seen multiple research reports upgrading S-REITs, with calls for investors to rotate out of Singapore banks and into REITs. Nomura, CGS International, JP Morgan… everyone seems to be on board.

What’s the reasoning? Broadly, it’s a combination of the factors we’ve just discussed: Interest rates are falling, which improves REIT valuations. The yield spread between REITs and risk-free government bonds has widened, making REITs look more attractive. Growing recession concerns mean investors may prefer defensive yield assets like REITs.

And let’s be honest—this is exactly the kind of attention REITs need to sustain the rally. When institutions start putting out bullish calls, it brings more buying interest into the sector, and that’s part of the reason why prices have surged so quickly.

Loving This REIT Rally… But Here’s What to Watch

Now, before we get into why I’m keeping some caution in mind, I know some of you are about to scold this uncle for throwing cold water over a fire that just got started. You know who you are! To My dearest critics and friends, Yes, but I’m only sprinkling some cold water but not pouring the whole bowl of water over the fire!

And honestly, I get it. It finally feels good to see REIT prices moving up after such a long, painful period. Believe me, I’m just as happy as you are, my portfolio value has gone up too, my dividends are still coming in, and for once, we’re seeing green instead of endless red.

But as long-term investors, we can’t let emotions control our decisions. If we get too euphoric when prices go up and too depressed when they fall, then let’s be honest, all of us REIT investors should have been in depression mode for the past two years!

So, with that in mind, let’s talk about why I’m keeping a balanced perspective on this rally.

1. This Rally Happened Too Fast

Look, I love seeing REITs rally, who doesn’t? But let’s take a step back. The speed of this surge is what makes me cautious. We went from REITs languishing to a full-blown recovery narrative in just a few weeks. And what was the catalyst? A shift in interest rate expectations, largely driven by economic and policy changes.

Now, here’s the thing, just as quickly as these factors shifted, they can reverse. Market narratives are often reactive to the latest headlines, and in a matter of months, we’ve gone from concerns over stubbornly high interest rates to widespread expectations of interest rate cuts. 

But sentiment can turn again just as fast. We’ve seen before how policymakers and central banks adjust their stance based on evolving conditions. If inflation data surprises on the upside, or economic priorities change, rate expectations could be recalibrated in an instant.

In addition, the flight to safety from growth stocks, especially Tech, to REITs may flip overnight. A single announcement or unexpected data release could send markets in the opposite direction, catching overly optimistic investors off guard. And sometimes even through tweeter or X. We have already seen some semblance of this: over the past 2 days, with the US market staging some recovery, the momentum in REITs have slowed. 

This kind of volatility makes it risky to jump in with both feet just because of a short-term rally.

Before we move on, if you’ve enjoyed the content so far, do this uncle a favor and hit the ‘like’ button! It really warms my heart to see the number of ‘likes’ and motivates me to continue producing these labour-intensive posts for everyone. Really appreciate it! Alright, let’s jump ahead. 

2. We’ve Seen This Before – Twice in 2024! What’s Different Now?

Now, I know what some of you are thinking: “Uncle, this time is different!” And I really hope you’re right. But let’s take a step back.

In early 2024, we saw REITs rally when interest rate cuts seemed imminent. In September 2024, we saw another surge when bond yields fell sharply. Both times, the optimism was high. Both times, analysts turned bullish. And both times… the rallies fizzled out.

So the key question isn’t just “Are REITs recovering?”, it’s “What’s different this time?”

To avoid another disappointment, I think we need to watch two things carefully, and over a sustained period of time. First, will bond yields and interest rates continue their downward trend? If we suddenly see a spike in inflation, those expectations could reverse. Second, will we get real improvements in REIT fundamentals, higher rental income, better occupancy rates, or accretive acquisitions? A rally without improving fundamentals is always at risk of fading. If these trends hold up, this time could finally be different.

So, instead of jumping to conclusions, I’m monitoring circumstances closely for a more established trend. I’m cautiously optimistic, but I’ve also learned my lesson from last year. 

3. Analysts Are Hedge-Betting, Again

Now, let’s talk about the analyst reports. If you’ve been reading the reports over the past week, you’d think S-REITs are the best thing since sliced bread and half-boiled eggs. Suddenly, every major brokerage is saying, “Time to buy REITs!”

And I agree, in fact I’ve been saying REITs are looking attractive for a while now. But here’s the thing… we’ve seen this play out before. Reports came out highlighting how REITs were undervalued and that rate cuts were coming soon. Then, when the rally fizzled out, those reports quietly disappeared. 

I get it, these analyst reports are just responding to market trends and it is extremely challenging to get it right. Come on, even I was a believer of the REITs upturns last year! 

The Hidden Detail I Spotted!

But this is where I want you to sit up and pay attention to what I’ve to say. If you read these reports carefully, beyond the headlines, many of them are actually hedging their bets. Some say REITs will outperform, but only as a ‘tactical’ trade. Others note that if a recession happens, REITs could still struggle. Hmm… interesting.

I’m not saying they’re wrong, but I’ve learned to take these sudden waves of bullish calls with a pinch of salt. If the rally continues, great! If it reverses, well… let’s just say we shouldn’t be caught flat footed.

That’s why I stick to my own research and follow the strategy I’ve planned for moments like this—rather than simply reacting to the latest analyst reports. And for you, my friends, make sure to do your own research too: don’t just take this uncle’s word for it, alright? 

The Dividend Uncle’s Take – Enjoy the Ride, But Stay Grounded

So let this uncle continue my story first: after celebrating the rally, high-fiving my friends, and I shared my cautious views with them and that the rally itself isn’t important.

And guess what? Everyone immediately shouted “Choy! Touch wood!” because just mentioning the idea that this could be another false start is taboo and very “suay”! And of course, as punishment for being the party pooper, I had to treat everyone to kopi. But after they finished complaining, they also asked me: 

“What really matters?”

If you’ve followed my posts, you know that what really matters would be what this short-lived surge has revealed about the market. We’ve seen which REITs bounced the hardest, which ones struggled to keep up, and most importantly, how quickly investor sentiment can shift. These insights are far more valuable than just watching prices go up for a week. Because whether the rally continues or fades, understanding these trends will help us make better long-term investing decisions.

For myself, I’ve already invested quite a bit during the previous false starts in 2024. So, I’m not feeling the need to go all in right now. But at the same time, I’m not sitting out either. Here’s my personal approach for the months ahead, but just to highlight that this is based on my own circumstances, and isn’t a suggestion for everyone:

1. I’ll continue dollar-cost averaging, especially into the key REITs in my Core-Satellite portfolio that I just shared in my last post. I’m not rushing in, but I’m also not stopping my long-term investing strategy just because of short-term uncertainty.

2. I’m taking this rally as an opportunity to rebalance based on my target Core-Satellite portfolio. Some REITs that I don’t consider long-term holdings have gone up as well. If they continue rising, I may trim those positions and reallocate into my Core-Satellite portfolio.

3. I’m staying alert. We all deserve a good turn after the past few years of pain. But I also know that markets can swing fast, and it’s important to keep emotions in check. That’s why I’m cautiously optimistic: excited, but not reckless.

Bottom line? Enjoy the rally, but don’t get carried away.

And if that sounds like I’m hedging my bets… you’re absolutely right! Guess I’ve been reading too many analyst reports lately. So as usual, take what I say with a huge pinch of salt as well!

So, what are you doing in this rally? Are you buying, holding, or trimming? Let me know in the comments! And if you found this post useful, remember to tap that like button and subscribe—it helps this uncle bring you more solid REIT insights.

Until next time, happy investing!