Over the past year, and in fact over the last five years in total, Singapore banks have significantly outperformed S-REITs (Singapore Real Estate Investment Trusts). During 2024 the three major banks, DBS (+52.57%), UOB (+35.20%), and OCBC (36.52%), delivered sterling total returns, far exceeding the Straits Times Index’s 23.53% and dwarfing S-REITs Leaders Index’s disappointing -6.28% loss. This stark contrast raises the question: is it time for investors to rotate from banks to REITs?
Performance Overview
S-REITs, STI, and BANKS Total Returns 2019 – 2025 (Based to 100)
| Total Returns | Straits Times Index | iEdge S-REIT Leaders Index | Singapore Banks | Difference S-REITs vs Banks |
| 2019 | 9.40% | 27.14% | 17.12% | 10.02% |
| 2020 | -8.05% | -0.94% | -2.56% | 1.62% |
| 2021 | 13.56% | 2.75% | 25.20% | -22.45% |
| 2022 | 8.39% | -11.57% | 11.92% | -23.49% |
| 2023 | 4.75% | 5.62% | 5.80% | -0.18% |
| 2024 | 23.53% | -6.28% | 41.40% | -47.68% |
| 2025 (End March) | 5.35% | 2.32% | 5.18% | -2.85% |
Source: SGX, Bloomberg, Golden Section Analysis. Accurate as of 18 April 2025
Singapore banks have thrived in the rising interest rate environment, with record profits driving share prices to historic highs. Banks tend to outperform REITs during periods of rising interest rates primarily because their core business model benefits from expanding net interest margins. As interest rates rise, banks can often increase the rates they charge on loans (such as mortgages, business loans, and credit facilities) faster than they raise the interest they pay on deposits, thereby widening their profit margins. This dynamic typically boosts earnings and return on equity for banks.
In contrast, REITs face headwinds in a rising rate environment, as their cost of borrowing increases – reducing distributable income – while their fixed rental income streams do not adjust as quickly. Additionally, higher rates make REIT yields less attractive relative to newly issued bonds, often pressuring REIT valuations.
Banks have outperformed S-REITs every year since the end of 2020, with 2024 seeing banks deliver a massive 47.68% outperformance. Singapore’s banks currently offer dividend yields around 5.5%, with forward yields approaching 6% following recent dividend increases.
Meanwhile, S-REITs yield approximately 6.4% on average, maintaining a yield premium despite the narrowing gap. March’s performance has though clearly demonstrated a switch in performance, as S-REITs saw far better performance than Banks, with the iEdge S-REIT Leaders Index up by 5.21% vs the Banks at 0.67%.
Valuations tell an important story. Banks now trade at or above book value (P/B ratios of 1.1x-1.3x), while many S-REITs trade at 5-15% discounts to their net asset values (NAVs), suggesting relative undervaluation. Both sectors experienced selling pressure during the recent “Trump Tariff Tantrum” (TTT) in April 2025. From the so-called “Liberation Day” on the 2nd April, until the pause announced on the 9th, S-REITs outperformed Banks by falling -10.55% versus the 3 Banks’ weighted average of -17.40%. For the month to April 16th (including the Post-Trump Pause recovery) S-REITs have fallen by -4.14%, while the Banks were down by -11.05% for the same period.
Drivers for Potential Rotation to S-REITs
Several factors suggest conditions may be favouring a shift toward S-REITs:
1. Interest Rate Expectations: The rate cycle appears to be turning. The Federal Reserve is expected to cut rates as inflation cools, potentially accelerated by recent market turbulence. Lower rates would compress bank margins while reducing financing costs for REITs, making their dividends comparatively more attractive.
2. Economic Cycle: Banks thrive during economic expansion and moderate inflation, while REITs often outperform in stable or late-cycle environments with low inflation and falling rates. Current indicators suggest a shift from an inflationary, rising-rate regime (bank-friendly) to a disinflationary, easing regime (REIT-friendly).
3. Valuations and Yield Spreads: The nearly 100 basis point yield advantage of S-REITs over banks looks increasingly attractive, especially if risk-free rates decline. Many REITs trading below book value offer better value potential than banks at or above book value.
4. Regulatory Environment: The Monetary Authority of Singapore recently relaxed some REIT regulations, providing greater financial flexibility, while bank regulations remain stringent.
5. Real Estate Fundamentals: Singapore’s property market shows resilience, with high occupancy rates in prime assets. If the economy avoids a hard landing, REIT distributions could grow in FY2025 after a flat 2023-2024.
Market Conditions Favouring Each Sector
Banks generally perform best during rising rates and strong economic growth, benefiting from wider net interest margins and increasing loan volumes. The steep yield curves and “risk-on” markets with credit expansion further boost bank performance.
Conversely, REITs typically excel when interest rates are stable or falling, and inflation is modest. As bond yields drop, REIT yields become more attractive, driving up prices. REITs also benefit from low inflation, which preserves the value of their rental income streams.
| Condition | Banks | S-REITs |
| Rising interest rates | Expands net interest margins ↑ | Increases debt cost ↓ |
| Falling interest rates | Narrows bank margins ↓ | Valuations up, lowers debt cost ↑ |
| Economic expansion | Loan growth, low defaults ↑ | Higher rent, better occupancy ↑ |
| Inflation cooling | Potential NIM squeeze ↓ | Stabilises real income/yields ↑ |
| High inflationand rate hikes | Temporarily boosts NIM ↑ | Dampens asset values ↓ |
Strategic Portfolio Approach
Rather than completely abandoning banks for REITs, a balanced approach offers several advantages:
1. Diversification: Singapore’s market is bank-heavy (the three banks constitute 53.65% of the STI index). Adding S-REITs introduces sector diversification and reduces portfolio volatility, as banks and REITs respond differently to macro factors.
2. Income Enhancement: A blended portfolio captures both banks’ solid yields and REITs’ higher yields, potentially achieving a higher blended dividend yield.
3. Growth vs. Stability: Banks offer earnings growth linked to economic cycles, while REITs provide stable, contractually driven cash flows. This combination is not overly reliant on a single return driver.
Sample Allocation Scenarios (for Income Investors Focused on Singapore)
1. Neutral Stance: 50% Banks / 50% S-REITs, yielding 5-6% income with balanced risk.
2. Bullish on REITs: 30% Banks / 70% S-REITs, anticipating significant rate easing and a REIT rally.
3. Bullish on Banks: 70% Banks / 30% S-REITs, hedging against resurgent inflation or delayed rate cuts.
4. Diversified Income (most preferred): 30% Banks / 30% S-REITs / 40% Other investments, combining high-yield equities with fixed income.
Illustrative Portfolio Mix and Expected Yield
| Portfolio Mix | Banks | S-REITs | Blended Yield | Comment |
| Neutral Stance | 50% | 50% | ~5.5%–6.0% | Balance of growth and income |
| Overweight REITs | 30% | 70% | ~6.0%+ | Maximising income, rate-cut bet |
| Overweight Banks | 70% | 30% | ~5.0%+ | Growth tilt, hedging inflation |
| Diversified Income | 30% | 30% | ~5.0% | Includes other assets (bonds, etc.) |
Note: Blended yield is approximate, assuming bank yield ~5%, S-REIT yield ~6.5%, investment grade bonds (SGD) ~4.5%
Conclusion
Given the evolving market conditions—peaking interest rates, moderating inflation, and softening growth outlooks—the environment that once favoured banks is shifting toward one more conducive for S-REITs.
Rather than making a binary choice, investors should consider rebalancing their portfolios to capitalise on beaten-down, high-yielding REITs while maintaining some exposure to banks. For those seeking both growth and income, a diversified strategy blending banks’ cyclical upside with REITs’ income stability offers a compelling approach. The case for increasing exposure to high-quality S-REITs with strong sponsors and robust balance sheets is stronger than it has been in years, suggesting now may be an opportune time to give “the landlords” greater representation in investment portfolios.
To capture gains from S-REITs, explore Syfe’s REIT+ portfolio, which tracks the iEdge S-REIT Leaders Index and offers exposure to multiple REIT sectors. Designed for passive income, our expertly-curated REIT+ portfolios offer a simple, consistent way to earn dividends.
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