Singapore is a landlord country – almost everyone would say “if I have money I will buy properties and rent them out, so I can shake leg and collect rental income.”
Property prices have risen considerably over the past 55 years and with leverage, many Singaporeans have became wealthy through property ownership.
But properties require large capital outlay which not every investor would have the luxury to afford. Enter REITs, which could ‘fractionalise’ ownership into smaller amounts via units listed on the stock exchange. This enables investors with smaller capital to own a piece of real estate and not worry about maintaining properties and collecting rent. Also, some of the prized assets such as shopping malls are too expensive for an individual to own in entirety. Breaking down into REIT units makes it accessible even for a retail investor to invest in.
Singapore Exchange (SGX) sports one of the best places to list a REIT and there are close to 40 REITs, excluding the Hospitality Trusts, available for investors to choose from.
Mandated to distribute 90 per cent of the rental income as dividends, REITs often offer high dividend yields ranging from 5%-10% p.a. Coupled with the regularity of dividends, REITs are attractive to many investors and even for retirees who want the cash flow.
But REIT investors got a nasty shock with many REITs crashing more than 50% in just 7 days.
Given the Covid-19 situation, many businesses such as bars, clubs, tuition centres, and cinemas have closed. Restaurants and F&B outlets receive less patrons as measures have been tighten to reduce human traffic. Hotels have seen occupancy dropped to the teens. Office workers are working from home and office space are much less needed than before.
Tenants have put pressure on landlords and requested for rental relief.
Restaurant Association of Singapore (RAS) was one of the earliest entities to voice it on behalf of the tenants. The battle between tenants and landlords ensued, as reported by this Straits Times article:
The association had singled out CapitaLand for previously announcing rental rebates of 50 per cent but giving certain F&B outlets less than that.
In response, CapitaLand president for Singapore and international Jason Leow said it was “unfortunate that the entire relief package has not been fully comprehended by RAS, despite our ongoing engagements”.
The Covid-19 situation has worsened with increased number of cases that were unlinked. It meant that the untraced infected people are out there in the streets. The call for stronger measures would deteriorate the economy of Singapore, but necessary to save lives.
To relieve the impact to the economy, the Singapore government decided to dip into our national reserves kitty and provide financial aids to businesses and households. Together with the earlier announced budget, the government would spend S$55 billion or equivalent to 11% of the GDP.
Pertaining to property related matters, property tax rebates would be extended to non-residential properties and rental waivers for tenants at properties under the government.
DPM Heng Swee Keat has emphasised that he expected the landlords to pass on the tax rebates fully to the tenants.
It seems like landlords are dragging their feet such that DPM Heng has hinted it might be put into law to force landlords to pass on the property tax rebates to the tenants. The government is pretty fast to act and a temporary bill will be tabled to Parliament next week regarding contractual obligations.
This would mean that REITs are going to lower rents for tenants and unitholders would receive lower dividends as a result.
This is a rude shock for investors who rely on the dividends for income and definitely would make some of them unhappy.
SPH REIT has announced that they will fully pass on the rebates to the tenants. They are doing even more, providing rental rebates of up to 50 per cent of base rent on the most hit tenants. This scheme will be extended till end of May.
Hence, SPH REIT is cutting the dividends and keeping the cash for the Trust to operate while collecting less income from the tenants.
My question is that is two months sufficient? What if the virus situation is still bad thereafter and REITs may indefinitely cut the dividends.
Is it fair to REITs unitholders to continually support the tenants? It is not an easy question to answer.
If you are rich enough, receiving a lower dividend would not affect your life and you have the capacity to help the tenants.
What if you are retired and rely on the dividends for cash flow? Would it be unfair if you take a big dividend cut that would threaten your livelihood?
One can argue that investing in stocks and REITs has risks and this is time where investors should bear those risks. But we can also turn it the other way and said that the tenants are business owners and they too must take the risks for such bad events to happen.
The most common argument is that tenants must be helped because if they don’t survive, the landlords would have empty units and lower rents anyway. But how do we also prevent less-affected tenants to take advantage of rent cuts?
The problem is that we cannot even agree on the principles to help or not to help. And if it is to help, where to draw the line?
What do you think? Vote below and leave a comment to explain your stance.
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.