The dream for many Singaporeans is to invest in multiple properties and use the monthly rental income to live on our own terms. In reality, this dream might never come true for many. Private property prices are high, and you might already be struggling to pay for your monthly HDB mortgage. Fortunately, there’s another way – and maybe even better way – to become the owner of multiple properties. You can invest in Real Estate Investment Trusts (REITs).
But first, what exactly is a REIT?
REITs purchase and manage a portfolio of properties that they collect rental income from. They are a listed entity, so you can invest in them, much like how you invest in stocks and ETFs. After deducting related costs, including their own management fees, REITs pay out distributions to investors either quarterly or semi-annually.
While there are about 40 REITs and property trusts listed on SGX, you can also gain access to globally-listed REITs through your brokerage firm. Apart from SGX, other common REIT markets include Japan, Australia, Hong Kong and the U.S.
You can consider investing in different types of REITs. Broadly speaking, they fall into seven categories:
- Commercial REITs: Own office properties and buildings
- Retail REITs: Own shopping malls
- Industrial REITs: Own industrial buildings and facilities (e.g. data centres, warehouses)
- Hospitality REITs: Own hotels, luxury resorts and serviced residences
- Healthcare REITs: Own hospitals and nursing homes
- Specialised REITs: Own properties such as ports, golf courses and others
What type of returns and benefits can you get from investing in a REIT?
A big allure of investing in REITs is that it typically pays out a relatively good dividend yield. According to the Singapore Exchange (SGX), the current distribution yield for REITs in Singapore is around 5.9%. Individual REITs can payout higher or lower yields.
You can start small
You can start investing in REITs from as little as a few hundred dollars. In comparison, the minimum amount you’ll need to invest in an investment property is at least a few hundred thousand dollars, and possibly shouldering a substantial home loan for the next two to three decades.
There’s better liquidity and less administrative work
This investment can be made relatively easily – you can just click “buy” on your brokerage platform. If you’re thinking about investing in your own property, you’ll have to view the property, engage a property agent and lawyers, arrange for a hefty downpayment, apply for a bank loan and more. It doesn’t stop there either. You will need to then look for a tenant, ensure they pay on time, service your property loan and more.
Instant diversification! (I.e. Reduced risk)
When you invest in a single REIT, you are investing in its entire portfolio of properties. This gives you instant diversification, compared to just investing in one office property or commercial property – which concentrates all your risk.
Think about it: when you visit the mall, you’ll notice there are always going to be one or two shops that are under renovation. If you are the individual owner of that unit, you will not be receiving rent during that period when you are finding new tenants. This can easily cause a financial strain as you still have to pay for your mortgage that you may have. In contrast, if you own the entire mall, that one to two empty shops may represent just 1% to 2% of your entire income – which means you can easily stomach the loss.
Access to REIT Managers
Investing in REITs also gives you access to the REIT managers – who ensure the malls have a high occupancy rate. Having a REIT manager means you also don’t have to worry about finding tenants, working with property agents, ensuring that they pay on time, keeping up with bank loans, making sure you are in line with government rules, etc. This administrative role can be taxing. Investing in a REIT just requires you to do some research on the REIT that you want to invest in and click “buy”.
Also read: How to Build a Retirement Portfolio That You Can Live Off in Your Golden Years
So, which REITs should you invest in?
As mentioned, there are roughly 40 REITs and property trusts you can choose from on SGX. Even if you’re unfamiliar with REITs investing, you will sure have heard of some of the properties that they own.
For example, CapitaLand Integrated Commercial Trust owns malls such as Tampines Mall, Bugis Junction and Junction 8, as well as office towers like Capital Tower and Asia Square Tower 2. Another well-known Singapore REIT is Frasers Centrepoint Trust, which owns heartland malls such as Waterway Point, Causeway Point and White Sands.
In Singapore, there are also REITs that own properties that are based overseas. Parkway Life REIT, for example, primarily owns nursing homes in Japan as well as hospitals in Singapore like Mount Elizabeth Hospital and Gleneagles Hospital. Manulife US REIT owns office properties scattered across the U.S. You can use the SGX Screener tool to look for REITs listed in Singapore. You can also leverage on your brokerage’s screening tools for REITs that are listed outside of Singapore.
If you’re still unsure about which REIT to invest in, you can invest in multiple REITs on your own, or simply rely on a REIT ETF. A REIT ETF goes one step further by investing in multiple REITs. This way, you gain exposure across REITs spanning different geographies and property types in their portfolio. This can be beneficial, especially during the current pandemic. For instance, COVID-19 has hit hospitality and retail REITs hard, while logistics and healthcare REITs have managed to ride out the storm. If you’re sufficiently diversified across different property types, you can ride out the good and bad times while receiving stable distribution income along the way.
In Singapore, there are three REIT ETFs that can offer diversification to REITs listed overseas as well.
Also read: You Don’t Need A Lot To Start Investing. Here’s What You Need to Get Started
Tip: How to start investing in REITs
If you already are confident in knowing the REITs you want to get in on, you can simply use your existing brokerage account to start buying them or open a local brokerage account. However, if you’re not sure, you should be doing deeper research into the quality of the properties owned by the REITs.
Here are some questions to consider: Are you confident they are strong enough to ride economic ups and downs? You can also ask yourself whether you want to be exposed to certain property types, such as commercial, retail, industrial, healthcare and others. Do you see the sectors performing well or recovering?
Many REITs in Singapore are also managed by well-established names, like CapitaLand, Mapletree, Frasers, ARA Asset Management and others. You should research the managers as well – they can make all the difference between a well-managed REIT and a poorly managed one. You will also want to look at the distributions you are going to get. Don’t just be sucked in by the highest yielding REITs. Always remember, higher yield means higher risk. There’s bound to be a reason they are the highest yielding REITs.
Finally, are you even confident of choosing the right REITs to invest in? If not, a REIT ETF might be the better way to start your property investing journey.
A new and seamless way to manage your investments and finance
Juggling multiple properties and investments? Keep track of all your finances through an easy-to-use tool such as Autumn. The single-view Financial Dashboard lets you integrate your information across your savings, loans, CPF, insurance, investments and more. Download the Autumn app on App Store or Google Play Store.
The information in this article is not intended to be and does not constitute financial advice, investment advice, trading advice, or recommendation of any sort offered or endorsed by Autumn.