REITs draw spotlight amid rate hikes

An electronic board set up in a dealing room at Hana Bank in Seoul shows a closing price on the main bourse, the KOSPI, Thursday. Yonhap

By Lee Min-hyung

Indirect real estate investment is regaining the spotlight as a safe haven amid increasing volatility in the local stock market.

Investors prefer real estate investment trusts (REITs) when demand for safer assets is rising amid fears of rate hikes, as REITs offer decent dividend returns even during periods of monetary tightening.

Data also showed that major REITs traded on the local equity market have generated outstanding profitability this year when fears over the U.S. Federal Reserve's rate hikes started escalating here and abroad.

According to data from the Korea Exchange, the average profitability of listed REITs reached 5.44 percent between the first trading day of this year and April 12. Most REITs turned out to have achieved growth, with 16 out of 19 traded REITs generating positive returns, according to the exchange operator.

This growth is in contrast to a double-digit decline of the benchmark stock indexes here during the same period. The main bourse, the KOSPI, fell by 10.77 percent, while the secondary Kosdaq suffered a bigger loss of 11.94 percent during the same period, amid heightened geopolitical uncertainties and global rate hikes.

REITs are also expected to continue attracting capital from investors, as the U.S. Fed is expected to enter a full-fledged cycle of monetary tightening soon by possibly raising its key rate by 50 basis points at one time in May.

The Bank of Korea (BOK) also increased on Thursday its benchmark rate by 25 basis points to 1.5 percent. Chances are the Korean central bank will also continue to adopt a hawkish monetary policy throughout this year in line with the Fed's monetary tightening.

With stock markets not just in Korea but also in other major economies expected to show turbulence on the Fed-driven rate hikes, REITs will likely gain more attention down the road, according to industry officials.

“One key feature of REITs is their stability,” an industry analyst said. “Investors who prefer to receive regular dividends will eye REITs at this time of monetary tightening.”