COMPARATIVE STUDY ON THE EXPOSURE OF REITS TO MACROECONOMIC FACTORS

Abstract

This research paper aims to examine the REIT returns in Singapore and Japan and investigate how the local property market and financial conditions and macroeconomic factors will affect REIT returns. The factors analysed in this study include Interest rates, Inflation, Property Price Index, and Stock returns. Past literature has shown a negative correlation between REIT returns and inflation, and interest rate, and a positive correlation between REIT returns and Property Price Index and stock returns. The contribution of this dissertation is to extend the time period studied to cover the more recent disruption during and after the COVID-19 pandemic; to compare and contrast developments in two mature Asian REIT markets; to compare and contrast the effects of selected variables at different time horizons. This research will analysed all the listed S-REITs and J-REITs, which includes of 40 S-REITs and 61 J-REITs. The empirical findings have shown that the local property market, financial conditions and macroeconomic factors will affect REIT returns. The correlation between Inflation and REIT return was negative, and Stock return and REIT return were positive, for both markets. The correlations between interest rate and REIT return, and PPI and REIT return were different for Singapore and Japan. The research also identified that the effect of the various factors could either be immediate, lead, or lag. Inflation and Stock return have an immediate effect on REIT returns, while interest rate will have a lag effect. Furthermore, PPI has a lag effect in Singapore and a lead effect in Japan.