REITs in Singapore — MoneySmart Guide to Investing in REITs

Singapore REITs (2018) – MoneySmart Guide to Investing in REITs

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.

Contents

  1. What are REITs? Can they be eaten?
  2. What kind of returns can you get from REITs?
  3. Which are the top Singapore REITs and why?
  4. How do you choose a REIT?
  5. How can you start investing in REITs?

What are REITs? Are they the same as shares?

Singapore REITs are listed companies that you can invest in, similar to how you would buy shares in SGX-listed companies. In fact, REITs are simply a subset of the latter.

But while publicly listed companies use their investors’ money to run businesses, REITs use the money to buy, operate and manage properties.

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, business parks, or whatever it is the REIT manages.

Whatever the properties earn in rental income, some of that money is paid to you in dividends. Woohoo!

Even if you’re a total beginner to investing, you’re probably already familiar with some REITs. For example, CapitaLand Trust, a retail/commercial 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.

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What kind of returns can you get from REITs?

If you invest in a REIT, you can generally 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? 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. So, many investors like REITs for the (more or less) steady recurring income.

On the other hand, the share price of a REIT can go up and down, just like regular stocks. For example, Singapore REIT prices fell pretty dramatically when COVID-19 hit — even as some continued to pay out 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.

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What are REITs?REITs (Real Estate Investment Trusts) pay investorsdividends earned through rental incomes of theproperties they buy, manage and operate.Like all investments however, REIT share prices mightfall, leaving you hanging with less than the principalamount you invested, or nothing at all.

Top 15 Singapore REITs (and why they’re so popular)

There are over 40 REITs listed on the Singapore stock market, but if you’re a beginner investor, you’ll probably want to go with one of these super popular REIT options.

Using data from SGX Stock Screener, we picked the 15 REITs with largest market caps — which is how much money investors have put into the fund. (This indicates the REIT’s size and popularity, but not its performance.)

Singapore REIT Type Market cap
CapitaLand Integrated Commercial Trust Retail, commercial S$14,753m
Ascendas REIT Industrial S$12,223m
Mapletree Logistics Trust Industrial, logistics S$8,306m
Mapletree Commercial Trust Retail, commercial S$7,260m
Mapletree Industrial Trust Industrial S$6,793m
Frasers Logistics & Industrial Trust Industrial, logistics S$5,341m
Keppel DC REIT Data centres S$4,654.394
Frasers Centrepoint Trust Retail S$4,415m
Suntec REIT Commercial, retail S$4,294m
Keppel REIT Commercial S$4,021m
Ascott Trust Hospitality S$3,512m
Mapletree North Asia Commercial Trust Commercial S$3,365m
ParkwayLife REIT Healthcare  S$2,456m
SPH REIT Retail S$2,414m
OUE Commercial REIT Commercial S$2,114m

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How do you choose a REIT?

There are a couple of important questions to ask yourself before you plunge your savings into a REIT.

1. What sector does it operate in?

If COVID-19 has taught us anything, it’s that much hinges on the REIT’s sector of the economy.

Pre-COVID, there were lots of popular hospitality and retail REITs, but you can imagine why investors aren’t all that keen on those anymore. Now, it’s mainly industrial, commercial and logistics REITs among the top Singapore REITs. (That said, it seems our faith in CapitaLand Malls is unshakeable.)

So depending on the sector(s) and which countries they play in, some REITs might be more resilient to changes in the global economy, and some less so.

2. Is the REIT well-managed?

REITs are optimal for buy-and-hold investors; there’s no point buying a high-yielding REIT that goes down in flames in the near future.

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.

Also 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.

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Comparing REITsWhat to look out for?YieldHow much can youexpect in dividendsPrice-to-Book-Value ratioP/BVHigh ratios, high investor worthLow ratios, potential growthDebt-to-Equity ratioD/ELook for D/E ratios below 60%SGX StockFactsCompare all these factors atSome industries adaptbetter to economic changesthan othersIndustry

How can you start investing in REITs?

What we like most is that they’re a relatively passive investment. There’s no need to monitor the stock market every day; just sit back and collect dividends. Great for lazy people.

Even if you’ve never bought a REIT or stock in your life, you can start investing in REITs at any time.

First, set up an account with the investment brokerage firm of your choice, which you can compare on MoneySmart. Here are the best ones for buying Singapore REITs.

Saxo logo
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Min. Commission Fee SG Stocks
S$10
Stock Holding Type
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S$3,000
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PhillipCapital (POEMS) logo
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Stock Holding Type
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OCBC logo
Min. Commission Fee SG Stocks
S$25
Stock Holding Type
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Min. Funding
S$0
UOB logo
Min. Commission Fee SG Stocks
S$18
Stock Holding Type
CDP
Min. Funding
S$0
DBS logo
Min. Commission Fee SG Stocks
S$25
Stock Holding Type
CDP
Min. Funding
S$0

If you don’t have much cash on hand to invest, go for either SAXO or POEMS, since they charge the lowest minimum commissions. This means you can put in a smallish amount to try — without a hefty fee like $25 eating into your potential profits.

You’ll typically need to fund the account first, either via PayNow or bank transfer. Once the brokerage has received payment, you can start buying your very first REIT. Good luck!

 

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