You’re a fan of Singapore REITs and you want a better return than the 2.5% interest given to your CPF Ordinary Account (CPF OA).
So, what’s stopping you from investing your CPF OA into REITs and get more than 2.5%?
It’s a plausible idea since REITs are known to distribute high dividends – it is common to see a REIT yield more than 5% in a year. REITs can easily beat the 2.5% CPF OA rate, not forgetting that the share prices can go up too and contribute even more gains.
Moreover, REITs are the closest thing to property investing and it is ‘affordable’ for most investors. Hence, using CPF OA to invest in REITs is a perfect match. But…is there a catch to it?
Let’s explore.
CPFIS Approved REITs
You can use up to 35% of your investible savings into stocks approved under the CPF Investment Scheme (CPFIS) – not all stocks can be invested with CPF funds and you can check the full list here.
Here’s the list of REITs which you can invest with your CPF OA:
- AIMS APAC REIT (SGX:O5RU)
- ARA LOGOS Log Trust (SGX:K2LU)
- Ascendas REIT (SGX:A17U)
- BHG Retail REIT (SGX:BMGU)
- CapitaCom Trust (SGX:C61U)
- CapitaMall Trust (SGX:C38U)
- CapitalRChina Trust (SGX:AU8U)
- Cromwell European REIT (SGX:CSFU)
- EC World REIT (SGX:BWCU)
- ESR-REIT (SGX:J91U)
- First REIT (SGX:AW9U)
- Frasers Centrepoint Trust (SGX:J69U)
- Frasers L&C Trust (SGX:BUOU)
- IREIT (SGX:UD1U)
- Keppel DC REIT (SGX:AJBU)
- Keppel REIT (SGX:K71U)
- Lippo Malls Indo Retail Trust (SGX:D6IU)
- Mapletree Com Trust (SGX:N2IU)
- Mapletree Ind Trust (SGX:ME8U)
- Mapletree Log Trust (SGX:M44U)
- Mapletree NAC Trust (SGX:RW0U)
- OUE Com REIT (SGX:TS0U)
- ParkwayLife REIT (SGX:C2PU)
- Sabana REIT (SGX:M1GU)
- Sasseur REIT (SGX:CRPU)
- SoildbuildBiz REIT (SGX:SV3U)
- SPH REIT (SGX:SK6U)
- Starhill Global REIT (SGX:P40U)
- Suntec REIT (SGX:T82U)
We will form a REIT portfolio using this list of REITs and examine its performance.
REIT portfolio beats CPF OA returns in the past 3, 5 and 10 years
Chris Ng did a backtest using pyinvesting.com and I have published the results of the REIT portfolio against CPF in 3 different time-frames.
3-year performance (2017 – 2020)
The REIT portfolio’s return of 10.4% beat the CPF OA return of 8.0% (table below).
It was only a slight outperformance but one had to endure a heart thumping drop of almost 40% in the portfolio value during Covid-19. That additional gain didn’t seem to be worthwhile if you would lose sleep over it.
REITs portfolio vs CPF OA between 11 Sep 2017 – 11 Sep 2020:
| CPF | REIT Portfolio | |
| Total Returns | 8.0% | 10.4% |
| Annualized Returns | 2.5% | 3.4% |
| Volatility | 0% | 17.8% |
| Max Drawdown | 0% | -39.5% |
5-year performance (2015 – 2020)
The REIT Portfolio did well with a total return of 37.7% or an annual return of 6.6%.
This is more than double the return from CPF OA and shows the value of long term investing.
REITs portfolio vs CPF OA between 11 Sep 2015 to 11 Sep 2020:
| CPF | REIT Portfolio | |
| Total Returns | 13.0% | 37.7% |
| Annualized Returns | 2.5% | 6.6% |
| Volatility | 0% | 14.4% |
| Max Drawdown | 0% | -39.5% |
10-year performance (2010 – 2020): REITs portfolio vs CPF OA
The REIT portfolio did equally well with an annual return of 6.5%, which beat the CPF OA’s 2.5% by a good margin.
Hence, REITs are indeed a good alternative to grow your CPF funds, if you do not mind going through periods of volatility and staying invested for the long run.
REITs portfolio vs CPF OA between 11 Sep 2010 to 11 Sep 2020:
| CPF | REIT Portfolio | |
| Total Returns | 28% | 88.0% |
| Annualized Returns | 2.5% | 6.5% |
| Volatility | 0% | 11.1% |
| Max Drawdown | 0% | -39.5% |
Can you lose money on Dividend Stocks?
Yes!
Now that your interest is piqued, I need to warn you about the risks of investing your CPF funds.
It may seem as if the 2.5% interest is easy to beat with your own investments. But it is important to note that leaving your money in CPF is capital guaranteed but you may lose money when you invest it, or do worse than the 2.5%.
The chart below shows that 40% of the CPF members who invested their CPF funds did worse than leaving the money untouched in the past 5 years. So the odds hasn’t been very encouraging.
Of course, these investors may or may not have invested in REITs. We have seen that most of the REITs have outperformed CPF OA and it should be easy to beat it. But what is true is that long term investing can be quite difficult for some people and market timing is often mistimed.
The backtest assumed you have bought all the REITs and didn’t sell or replace them in the last 10 years. How many investors actually have done that? It is too easy to doubt yourself when the investments are not doing well, or call it quits when the market is bearish.
Time and effort is necessary to monitor
“Buy and forget” is a myth. You must be willing to commit time and effort, if you want to DIY your CPF investments.
Although I advocate staying invested for the long term, some REITs may deteriorate overtime and you need to decide whether to sell and replace them. You just have to make sure that the decision is a rational one and not an emotional one.
REITs are also known to raise money via rights issue from time to time. This is where you need to make decisions too – to subscribe or not. And you would need to use CPF funds to subscribe to the rights if the REITs were held in your CPFIS account. You have to make sure you have enough allowance (35% of investible amount) to pay for the rights, otherwise you may want to make CPF top ups in time for the issue.
If it is too much work for you, you would probably be better off leaving your money in CPF OA.
REITs may not do as well in the future
REITs have done well in the past 10 years and it is of no guarantee that it would continue to do as well in the future.
It could be a case whereby the real estate sector undergoes a fundamental shift. Covid-19 has showed us the vulnerability of densely populated cities and the world can continue to function, despite locking down human movements.
These were made possible with technology – physically apart, digitally connected. Currently, there were already signs Americans are moving away from cities to the suburbs. Could work-from-home policies alter the prices and rental rates of real estate?
An alternative case also be that REITs are such attractive investment that many investors rush into them and make it a crowded trade. If that happens, it is very hard to have an edge over the others and returns can be competed away.
Hence, the future for REITs is not without risks. Even though I don’t think these are likely to happen but it is good to know the possibilities of bad events happening.
Should you invest your CPF OA in REITs
I have showed that REITs have been great performers over 3, 5 and 10-year periods. The REIT portfolio easily delivered higher returns than CPF OA. But it is not a free lunch as you need to take higher risks, withstand the ups and downs, monitor your investments and take the right actions.
It may not be worthwhile for some people.
Hence, leave your CPF OA alone and stop eyeing for higher returns if you do not want to go through the trouble. Do it wholeheartedly and diligently if you decide to embark on enhancing your CPF returns.
PS: Check this page if you are interested to use CPF Funds to invest in REITs but don’t know where to start. Register for a free session to hear from Chris about REIT investing.
Very informative write-up with data provided. For the 3 years performance, the annualized return of 3.4% still less than Special Account rate of 4%. Transfering to SA is another way to enjoy high rate, but the transfer is one way, have to wait until 55 or 65, haha.
Soon after the brakeout of Covid I bought First REIT stock for 0,70 thinking it’s a great deal as hospitals will be important during the pandemic. How wrong I was – now First REIT is around 0,45… But I can stand it provided that in the long term it will go up. But do you think this is the case? Or maybe do you think First REIT is in danger of bankrupcy? What’s your opinion on First REIT?
It isn’t easy to figure out that hospitals would suffer from Covid-19. I didn’t expect it either. It is only in hindsight then we know that non-emergency treatments and consultations were postponed.
I don’t think it will go bankrupt. But underperformance is a possibility.
Here’s what I wrote previously:
https://drwealthcom.wpcomstaging.com/why-are-first-reit-and-the-unit-holders-blindsided-by-a-press-release/
I had First REIT previously, but I sold it at a loss ($300) and cycled the capital out to another company, which has since covered the loss. It’s not a good REIT. I certainly don’t need the drama from the Lippo Karawaci family in my investments. Highly recommend you to read the investing community comments on First REIT. You can find them on Singapore Stock, REIT and Bond Investments Facebook group. Good luck.