Investing in real estate is part of the Singapore Dream. Own property, become a landlord, enjoy a consistent stream of rental income until the end of your days.
… I did say it’s a dream, right? In truth, being a landlord always sounds much nicer than it actually is.
For a start, you need buttloads of money to even think about becoming one. Most of us can barely scrape together enough for an HDB flat to live in, let alone become a property magnate.
Then there’s the ongoing business of finding and managing tenants, chasing for rent payments, sorting out air con and plumbing problems when they inevitably arise… When it comes down to it, being a landlord is neither as cushy nor glamorous as it seems from the outside.
So what if you want to be a landlord, but can’t? You invest in real estate investment trusts, better known as REITs. This is REITs 101.
- What are REITs?
- What kind of returns can you get from REITs?
- How do you choose a REIT?
- Top Singapore REITs in 2019
- How can you start investing in REITs?
What are REITs?
Singapore REITs are listed companies that you can invest in, similar to how you would buy shares in other companies. But unlike other listed companies, REITs use investors’ money to buy, operate and manage properties rather than run businesses.
There are currently 34 REITs listed on SGX (the Singapore stock market). They can be subdivided into these property sectors: office, retail, industrial, hospitality and healthcare.
Even if you’re a total beginner to investing, you’re probably already familiar with some REITs. For example, CapitaLand Mall Trust, a retail REIT, is one of the best known in Singapore thanks to its string of “cloned” shopping malls. Another one that might ring a bell is industrial REIT Ascendas, which manages business parks like Science Park and Changi Business Park.
When you invest in a REIT, you’re investing in the properties managed by that REIT. In a sense, you become part-owner of those shopping malls or business parks. Whatever the properties earn in rental income, some of that money is paid to you in dividends. Woohoo!
What kind of returns can you get from REITs?
If you invest in a REIT, you can expect it to yield between 5% and 8% a year in dividends (paid out quarterly or every 6 months).
How is it possible for yields to consistently be so high though? It’s because REITs are required by law to redistribute at least 90% of their taxable income each year i.e. pay it out in dividends.
Many investors like REITs for the (more or less) steady recurring income, similar to how bonds pay out coupons consistently.
But don’t ignore the fact that the share price of a REIT can go up and down, just like regular stocks. A REIT’s share price might fall even as it continues to pay out big fat dividends. Some investors don’t mind the trade-off, but just be aware because you never know when you might need to sell off the REIT.
How do you choose a REIT?
The key is to find one that is well-managed and is able to ensure a consistent stream of income. Don’t just go for those with higher reported yields, but take the time to read the REIT’s prospectus and see if it fits with your risk appetite and how long you intend to remain invested.
A good place to start doing proper research into REITs is through SGX Stock Screener. Filter “Sector” to “Equity Real Estate Investment Trusts (REITs)” and you can see some key stats from each listed company. If you want to see anything other than the default stats, you can customise your display and select a different set of data points.
This is a good way to see, at a glance, which REITs have the highest yield, which gives you an idea of how much in dividends you can hope to get.
But there’s no point buying a REIT that goes down in flames in the near future, so you also need to check for indications of its stability, such as the historical share price and debt-to-equity ratio. Fortunately, big-name REITs are generally fairly stable and it’s unusual to find one that has borrowed beyond its means.
What might impact your decision more is the nature of the REIT’s property portfolio – whether it specialises in industrial, business, healthcare, retail properties, and which countries it plays in.
Some REITs might be more resilient to changes in the economy and some might be less so. The current industrial property market, for example, might see a drop in rental prices in order to retain as many tenants as they can in a slower economy. This will probably lead to a drop in income, and dividends may not be paid out if the REIT reports an operating loss.
Analysing the top Singapore REITs in 2019
Here’s a snapshot of the most popular REITs in Singapore, ranked by yield (best to worst). The data is from SGX Stock Screener and is valid as of 17 Jan 2019:
|Singapore REIT||Share price||Dividend yield||Portfolio type|
|Soilbuild REIT||$0.595||8.69%||Industrial buildings / parks|
|First REIT||$1.05||8.35%||Healthcare in Indonesia|
|Sabana REIT||$0.405||8.15%||Industrial buildings|
|ESR REIT||$0.535||7.07%||Industrial buildings|
|Ascott REIT||$1.14||6.13%||Hotels, serviced residences|
|Ascendas REIT||$2.73||5.76%||Business parks|
|SPH REIT||$1.02||5.49%||Shopping malls|
|Suntec REIT||$1.88||5.29%||Offices & retail malls|
|Keppel REIT||$1.17||4.77%||Premium office buildings|
|Sasseur REIT||$0.685||–||Outlet shopping malls in China|
Soilbuild REIT (share price $0.595)
With an impressive yield of 8.69% last year, this industrial property-focused REIT has obviously caught the eye of investors. It specialises in industries like marine, oil & gas, manufacturing, electronics and R&D. Key properties in its portfolio include Solaris at One-North, Eightrium at Changi Business Park and Tuas Connection.
First REIT (share price $1.05)
If you want to invest in Asia’s growing healthcare sector, consider Singapore’s first healthcare real estate investment trust First REIT. It manages a large portfolio of hospitals and healthcare-related buildings in Indonesia, with a couple of properties in Singapore and South Korea.
Sabana REIT (share price $0.405)
Another industrial REIT with a promisingly high yield of 8.15% is the Shariah law-compliant Sabana REIT, which manages a number of standalone industrial buildings all over the island.
ESR REIT (share price $0.535)
You can’t buy shares in the government-owned industrial property giant JTC, but ESR REIT comes pretty close. It has 56 industrial buildings across Singapore, mostly in places like Tuas, Woodlands and Changi. It’s also been in the news lately due to a merger with fellow industrial REIT, Viva Industrial Trust, which is a first in Singapore.
Ascott REIT (share price $1.14)
Part of the real estate behemoth that is CapitaLand, Ascott Residence Trust focuses on hotels and serviced residences, mainly properties under the Ascott, Somerset and Citadines hospitality chains. Although hospitality might be a volatile sector due to the short term nature of its tenants (guests), Ascott REIT has properties in 14 countries, which spreads out the risk.
Ascendas REIT (share price $2.73)
Singapore’s largest listed business/industrial REIT absolutely dominates the business park scene with over 100 properties here, plus 30+ in Australia. Key names in its portfolio as Science Park, One-North and Changi Business Park. The interesting thing about Ascendas’ size is that it also means many, many tenants including big players like Singtel – therefore it’s not dependent on just a few core tenants.
SPH REIT (share price $1.02)
Everyone’s favourite newspaper publisher SPH has a REIT subsidiary that manages two buildings, Paragon and the Clementi Mall. SPH also is known to be a financially conservative, and therefore low-risk, company.
Suntec REIT (share price $1.88)
Everyone knows about Suntec City, the namesake property of Suntec REIT, but Suntec REIT also has a large share in other large complexes like One Raffles Quay and Marina Bay Financial Centre, plus commercial buildings in Melbourne and Sydney.
Keppel REIT (share price $1.17)
Another giant in the Singapore REITs scene is Keppel REIT, which has been listed on SGX since 2006 and manages mainly premium office buildings like Ocean Financial Centre, Marina Bay Financial Centre, One Raffles Quay, and similar business developments in Australia. However, note that it has been underperforming compared to the others on this list.
Sasseur REIT (share price $0.685)
And now for something completely different… a REIT that manages factory outlet shopping malls in China. Sounds like money raining from the sky, doesn’t it? Though it’s pretty new – historical dividend yield data isn’t available on SGX yet – it has already generated a lot of excitement from its premise alone.
How can you start investing in REITs?
Don’t be too intimidated by the big names and data points. Investing in REITs is fairly simple and low risk (as long as you do your due diligence) – it’s a relatively passive sort of investment as you won’t have to monitor the stock market every day.
REITs are fairly affordable and good for beginner investors who may not have that much cash on hand to invest. That said, because of the high commission rates charged by brokerage companies, one should at least be able to commit $10,000 before considering investing in REITs.
What are your thoughts on investing in REITs? Share them with us.
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