Owning a property, being a landlord, and enjoying the consistent stream of rental income during your retirement is always a dream for any person in Singapore. With sky-rocketing prices of properties, property investments have become more of a dream. This is where the Real Estate Investment Trusts (REITs) come into the picture to make this dream turn into reality. So to get you started, we have put together a complete guide to REITs.
What are REITs?
REITs pool funds from many investors and purchase a large portfolio of properties. When you invest in an REIT, you are investing in the properties that are managed by the REIT which makes you a part owner of malls, business parks, or anything that the REIT manages. The REITs are listed on the Singapore Exchange (SGX) and can be bought and sold just like shares of any regular company.
What Kind of Returns Can You Get When You Invest in REITS?
Whatever the properties earn during the rental income, some of the money is paid to you in dividends. Here are some of the benefits that you gain when you invest in REITs.
Tax-free returns
The distributions are tax-free and eliminate taxes such as Additional Buyer’s Stamp Duty (ABSD) and Seller’s Stamp Duty (SSD). Because the REITs are mandated to distribute at least 90% of their profits to the unitholders, they tend to offer good yields that are backed by tangible assets. The cash flows of the REITs are visible and stable to the investors. It is a suitable choice for investors who need regular income from their investments.
Liquidity
The share price of a REIT can go up and down just like regular stocks, similar to a webtrader. Since you can sell and buy REITs at market rates, you get it done in a few hours or days faster compared to buying physical properties. You can even purchase a REIT along with government cooling measures such as Total Debt Servicing Ratio (TDSR) and Loan-To-Value (LTV) limits. You can also make money by selling the REIT when the share price goes up.
High yields
You can expect a yield between 5% -8% a year in dividends. But the market fluctuates, so you need to make a note of the fluctuating prices beforehand.
What Are the Different REITs Sector That You Can Choose From?
There are eight sectors of REITs in Singapore that you can choose from.
- Retail REITs
- Residential REITs
- Office REITs
- Industrial REITs
- Hospitality REITs
- Healthcare REITs
- Hotel and Resorts
- Specialized REITs
How to Select a REIT Investment?
Ask yourself these questions before moving ahead to purchasing an REIT.
- Does the REIT own properties that you would like to own?
- How do you see the REITs perform in the next ten years from now?
- How is the management team in the REIT company that you have chosen?
- Are you confident to invest in REIT?
How to Buy REITs in Singapore?
Once you are confident in purchasing one, here are some factors that you need to consider when you access the market.
- Just like any investment you do on the Singapore Exchange (SGX), you need to open a stock brokerage and Central Depository (CDP) account first.
- While you sign for a brokerage account they will also provide you with the CDP application form to fill in and submit.
- After submission of the form and the supporting documents, your CDP application is completed. After that the CDP notify you via post with all the necessary login information.
- Research about the REIT and purchase the one which you have chosen once you log in.
What Are the Things to Avoid When Investing in REITs
Not taking the time to read the prospectus of the REIT
Before handing over your money to purchase the REIT, read the formal legal document. Though the information provided can be overwhelming, it provides details about the fees, investment objective, past performance risk, performance, distribution policy, and fund management.
Not researching about the REITs, its nature, its history, and the debt-to-equity ratio
The prospectus of the REITs gives you all the data that you can analyze and research about the necessary factors before investing in one.
Not analyzing the risks and its compatibility with your risk appetite
You need to analyze and decide with the type of risk that you can bear. The risks of the REITs are similar to a share market. Plan your finances accordingly to the performance of the REIT.
Choosing the REITs based on the dividends
The dividends can surely be intimidating for anyone. But you need to know that it’s your money and your investment. A higher dividend means a lot of risks. So, start investing in a simple and low risk REIT, and then further diversify your investment into more REITs.
Not purchasing a higher reported yield beforehand or the brand name
It is a good way to see at a glance of the higher reported yield by the REIT, to give you an idea with the amount of the dividends that it can offer. But you need to check for the indicators related to its stability from its historical share price and the debt-to-equity ratio.
Some REITs can be more resilient to changes in the economy or they might be less. At the end of the day, REITs offer a convenient way for you to get started with property investing and to fit it into their overall investment portfolio.
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