There are two things Singaporeans love:
- Eat good food.
- Invest in property.
#2 should come with no surprises given that property ownership has always been associated with ‘wealth’ among many Asian families.
Growing up in Singapore, it is common to hear our parents’ talk about how much better their lives would be, if they had bought some extra shophouses back in the day…
That’s said investing in Singapore REIT is never easy. Most investors do not have the capital nor knowledge to be successful.
Today, we will show you how you can own real estate through an investment vehicle called Real Estate Investment Trust (REIT).
If you are in a rush, you can download this entire guide and read it later, just by clicking on the link below:
With REITs, aspiring investors like you, not need to worry about large capital requirements, house mortgage or need extensive knowledge in property management.
Let’s jump right in, get you up to speed and kick start your REITs investing immediately:
What Are REITs
Singapore Real Estate Investment Trusts (also commonly referred to as S-REITs) are listed companies that pool investors’ capital to invest, own and operate real estate properties.
The properties are then leased out to tenants in return for rent. Investors who invest in REITs are co-owners of the REITs. They are entitled to earn rental income from the property assets which are distributed regularly. The returns they earn from the investment is called distribution yield.
Aside from that, investors also stand to benefit from the capital gain as the property value increases. Although REITs may not be a common term for many non-investors, Singaporeans are no stranger to the properties owned or managed by these REITs.
We list some of these popular landmarks below;
- Marina Bay Financial Centre is owned by Suntec REIT with 33% ownership. Suntec REIT is known for its commercial real estate portfolio. Currently, the REIT owns 7 landmark buildings at a valuation of approximately $9.5 billion.
- Gleneagles Hospital is owned by ParkwayLife REIT. Plife REIT has a total portfolio size of 49 properties valuing at approximately S$1.7 billion which makes them one of the largest healthcare REITs listed in Asia.
- Paragon is an upscale retail mall managed by SPH REIT. The REIT owns only 2 buildings, Paragon and The Clementi Mall, and its portfolio is valued at approximately $3.23 billion.
How To Buy REITs In Singapore
REITs are traded in the stock exchange just like common stocks. Before you can invest in local REITs, you will need 2 accounts:
If you have been investing in the stock market, then chances are you already have both the accounts. All you need is to know the code of the REIT you are interested in and purchase it via your online brokerage platform or by calling your broker.
However, if you are a completely new investor, the good news is you need not have to travel to the SGX CDP office (at Raffles Place or Buona Vista) to set up your account. You can go straight to a local brokerage firm directly to apply for both accounts in a single seating.
The turnaround time takes less than 7 working days depending on your broker.
Singapore REITs List
Here are some of the SG REITs you can find in the Singapore Stock Exchange. For complete REITs database click here:
|Trading Name||Quote||Mkt Cap ($M)||P/E||Yield (%)|
|AIMS APAC Reit||O5RU||1000.581||19.73||5.95|
|BHG Retail Reit||BMGU||353.755||11.88||6.43|
|EC World Reit||BWCU||596.846||14.24||8.25|
|Fortune Reit Hong Kong $||F25U||18102.027||3.47||5.46|
|Kep-KBS Reit USD||CMOU||649.109||16.6||6.88|
|Keppel DC Reit||AJBU||2380.016||15.8||3.82|
|OUE Com Reit||TS0U||1495.314||12.87||5.18|
|Prime US ReitUSD||OXMU||836.097|
|Cache Log Trust||K2LU||789.231||39.57|
Singapore REITs Index and ETF
As with stocks, investors can either choose to analyse and invest in individual REITs or invest in a basket of REITs through the use of ETFs.
ETFs are passive funds that aim to emulate the results of an underlying index. There are several REITs ETF listed in the SGX for investors to choose from.
Here’s a quick explanation of the difference between a REITs Index and a REITs ETF:
Singapore REITs Index
One of the five investable themes mentioned in the SGX Thematic Indices is REITs.
SGX S-REIT Index aims to track the performance of Singapore REIT.
The index is a free-float market capitalisation weighted index which is reviewed bi-annually in March and September. Although the index is not commonly used by the media, investors can benchmark their performance against the index, and use it to determine the REIT market sentiment.
Alternatively, you can refer to the SGX S-REIT 20 Index. It is also a free-float market capitalisation weighted index, but it measures only 20 SGX-listed REITs, selected by size and trading volume.
For more information you can refer to: SGX > Market Information > Indices > “Index: SGX S-REIT Index.”
REIT Singapore ETF
Launched in early 2017, NikkoAM-StraitsTrading Asia ex Japan REIT ETF is the first SGX-listed REIT ETF. It is a collaboration between Nikko Asset Management and Straits Trading Company.
Investors can tap on the REIT ETF to gain wide exposure to Asian REITs, without the constraint of large capital outlay.
SGX REIT makes up more than half of the portfolio while the remaining are diversified across Asia. The geographic breakdown is represented in the image above.
3 Things to Avoid when investing in REIT Singapore
Now let’s take look at the three factors you should avoid when making any investment.
1. Dividends Are Not The Only Key Metric
This might sound counter-intuitive, but you shouldn’t only focus just on the distribution yield. What do we mean by that?
Why does a troubled REIT like Sabana REIT have a double-digit yield of 11.8% in the past year compared to Keppel DC REIT’s 5.6%? Isn’t Keppel DC REIT supposed to be of better quality and growth prospects than Sabana REIT?
To answer that question, we first have to look at the total return that both REITs yield in the past year (let’s use CY2016 for a fair comparison).
In 2016, Sabana REIT share price fell by 25% (even if we exclude the significant drop in Jan 2017 from the rights issue announcement!). Now compare that with Keppel DC REIT’s performance over the past year of 18% gain. Even after getting an 11.8% yield from dividends, shareholders of Sabana REIT are still making a loss of 13%!
This is in stark contrast to the shareholders of Keppel DC REIT, which made 23.6% in 2016.
As investors, we tend to have selection bias in focusing on REITs with higher dividend yields and avoid those with lower yields. This is so as we often think that the return we get is only from dividends, which isn’t true!
Apart from dividends, we would expect to make capital gains as well. So rather than looking at dividend alone, we should be looking at both dividends and capital gains.
2. Poor Macro Outlook
REITs stand for Real Estate Investment Trust. This means that investing in REITs is like investing in real estate, and you don’t have to worry about property cooling measures like ABSD. For any real estate investment, the macro outlook of the economy will affect the return of the investment. For REITs, there are five sub-sectors: Office, Retail, Industrial, Hospitality and Healthcare.
Each sub-sector has a different outlook considering the economic factors affecting them.
There are still outstanding REITs within each sub-sector. But bear in mind: There is a high opportunity cost of investing in outstanding REITs of sub-sectors with weak macro outlook. We can make much better investments if we can allocate our capital into REITs from sub-sectors with better growth potential.
For example: If the retail sub-sector is facing obstacles like the turbulent global economy and increased competition from eCommerce… it might be a better idea to place your capital into REITs of other sub-sectors where there is clearer and more visible growth.
For example, if the retail sub-sector is projected to do poorly. You can give CapitaMall Trust (which is an outstanding Retail REIT) a miss, and put your capital in Keppel DC REIT which is in another better sub-sector.
3. Watch Out For High Gearing
Most REITs typically use debt to finance the acquisition of new properties into their portfolio. Thus, investments in REITs will expose investors to interest rate risk. This means that as interest rate increases, it will negatively impact the earnings of REITs and thus, affect the distribution for REITs.
To determine the relative amount of debt a REIT has, we use gearing ratio as a gauge. Gearing ratio represents a REIT’s amount of debt over its total assets. As the ratio increases, it signifies the more debt the REIT has over each unit of asset. Investors are exposed to higher interest rate risk when REITs are over-leveraged (high gearing level).
While not all REITs with high gearing ratio are poor investments, we have to remember that a higher gearing ratio exposes our portfolio to higher interest rate risk.
REITs Are a Good Addition to Any Portfolio
The combination of management fees and lower leverage power means that returns from REITs are unlikely to beat returns from property investments.
However, the high leverage in property investments also means that it is riskier. Bad property investments can seriously damage an investor’s wealth.
All in all, REITs provide an easy, low-risk investment option to gain exposure to a diversified portfolio of properties.
How To Get Started in 2019?
If you are an aspiring investor looking to own a piece of Singapore property with low starting capital, while earning a regular income, we hope this complete guide to Singapore REITs has convinced you to start looking at REITs as an option.
We have provided the key fundamentals to REITs investing in Singapore via the various sections above. You should be able to understand frequently used terms in REITs, understand what to look out for in a profitable REIT, and how to actually invest and buy a REIT.
Our Early Retirement Masterclass trainer, Christopher Ng Wai Chung has had frequent discourse with us on the power of REITs as a dividend investing tool. His results back up his actions. He retired at 39 with a passive income of $6,000 – $8,000/month. And his retirement was never threatened by the birth of his second child or his desire to go to law school at SMU.
You can check him out here.