The sun is setting on Singapore's high-yielding S-REITs, analysts warn

Total returns will be near zero until 2016.

Investors should think twice before snapping up shares of Singapore REITs, a report by OCBC revealed.

“Over the last seven years of ultra-low rates, investing in S-REITs has been fruitful for many. However, against the backdrop of rising rates and declining sector DPU growth, we foresee significant headwinds for the S-REITs sector ahead,” OCBC said.

The report highlighted that the sector's already muted DPU growth is forecasted to fall from 3.8% year-on-year toward the end of FY15 to just 2.2% toward the end of FY17.

As rates rise, OCBC said that markets are also likely to price the sector’s forward yield at 7.25% at the end 2016, compared to 6.32% at present.

“Our quantitative analysis show that investors in the sector will reap almost zero total returns from now to 2016 and - much worse - may experience an rapid initial capital loss from falling unit prices before making it up to par from dividends collected. Finally, the S-REITs sector can suffer significant declines during periods of high market volatility, and we see additional downside bias if the Fed lift-off is accompanied by a VIX spike ahead,” the report warned.

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