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What are REITs and how to start investing in them?
When #adulting hit me on the head, one of the first types of assets I started investing in were REITs. As you know, REITs in Singapore are a popular investment vehicle.
Naturally, I wanted in on the Singapore REITs bandwagon so I started investing in REITs. This was, of course, after I had researched REITs’ meaning, the different types of REITs (including REIT ETFs and REIT stocks) and how to buy REITs in Singapore.
I’m now here to share the fundamentals of REITs with you. Read on to find out more about investing in REITs and the top 7 Singapore REITs to consider.
What are REITs?
REIT stands for Real Estate Investment Trust. Simply put, a REIT is a company that owns and generates income from real estate. It’s a bit like mutual funds, in the sense that REITs put the capital from its many investors in a pool, so that each investor can earn dividends from real estate investments — all without needing to buy, manage or finance an actual property.
Real estate is big business in Singapore. Take a look at the list of Singapore’s richest billionaires and you’ll see that many of them made their fortune in real estate.
And I’m not just talking about the never ending land grabs by condo developers. We’re a highly urbanised, dense and land-scarce island, so tenants pay a premium for commercial and industrial spaces like retail shops, offices and warehouses.
Here are some of Singapore’s top REITs:
|REIT Name||Description||Market Cap||Dividend Yield|
|Ascendas REIT||This industrial REIT owns and operates business spaces, logistics and distribution centres, industrial properties and data centres. Some of their Singapore properties include buildings in Changi Business Park, a Giant Hypermart warehouse in Tampines and warehouses in Tuas.||S$11.84B||4.75%|
|CapitaLand Integrated Commercial Trust||If you’ve never been to a CapitaLand mall, you’ve never been to Singapore. CapitaLand’s mainstay is shopping malls, and their portfolio includes Plaza Singapura, Raffles City, Bugis Junction, Bugis+ and Jcube.||S$14.14B||4.07%|
|Mapletree Industrial Trust||This REIT owns and operates industrial property and data centres, with a portfolio that’s split between properties in Singapore and the US.||S$6.81B||4.69%|
|Mapletree Logistics Trust||This REIT owns and operates logistics property in a number of countries including Singapore, Hong Kong, Japan, China, Australia, South Korea, Malaysia, Vietnam and India.||S$8.41B||4.66%|
|Mapletree Commercial Trust||The focus of this REIT is commercial property in Singapore, including shopping malls and office buildings. The portfolio includes VivoCity and Mapletree Business City.||S$6.12B||4.46%|
|Keppel DC REIT||DC stands for data centre, which is the property type that this REIT focuses on. They own data centres in Asia, Oceania and Europe.||S$3.69B||4.56%|
|Frasers Logistics & Commercial Trust||This REIT focuses on logistics and commercial properties in Singapore, Australia, Germany, the Netherlands and the UK. Their local properties include Alexandra Technopark and Cross Street Exchange.||S$5.24B||5.24%|
Should you consider to invest in REITs?
When you invest in a REIT, you’re investing in the companies that own and make money from property without having to buy the property itself.
The main draw of investing in REITs means that you don’t need to profit from a strong real estate market without having to fork out the cash for property, lock yourself into a highly illiquid property purchase or deal with the logistics of property ownership like searching for tenants.
In Singapore, REITs usually pay dividends, so they’re ideal for income investors looking for passive income. If you don’t need the dividends, you can reinvest them. Investing in REITs also helps you diversify your investment portfolio.
However, on the flipside, REITs, being property, are affected by interest rates, demand for property type (for example office building and/or malls during the Circuit Breaker), rental yield, tenant occupancy rate, and other property trends.
Overall, it makes sense to buy into REITs as the barrier to entry is lower, compared to plonking down a big deposit for an actual property. For REITs, one can generally be a passive investor, holding onto the investment and reaping the dividends. However, for actual property investment, time is spent actively managing the property and/or the tenant, navigating paperwork and so on. Of course, if one has the capital, much more can be earned from direct property investment due to appreciating prices and rental yield in land-scarce Singapore.
How to select Singapore REITs
Using a platform like moomoo, you can search for Singapore REITs based on criteria such as price, property type and dividends. Simply enter the parameters into the search filters.
Not sure where to start? Here are some of the Singapore REITs available on moomoo:
What’s the difference between…
a) What’s the difference: REITs vs ETFs
Exchange Traded Funds or ETFs is yet another acronym that investors love. ETFs typically track an index, which in turn track a basket of assets being traded on an exchange, letting you gain exposure to multiple shares with one single purchase. This might or might not include REITs, which are but one type of asset that can be traded on an exchange and included in an ETF.
For instance, the top REITs we mentioned earlier are also constituents of the Straits Times Index, the most well known index in Singapore, often thought to be reflective of Singapore’s economic growth.
b) What’s the difference: Property stocks vs direct properties
Property stocks and REITs do not give you ownership of property. Instead, they give you a share in companies that own, operate and earn money from property. Needless to say, it is much easier to buy property stocks than property. Not only do property stocks cost way less, they are also very liquid and can be bought and sold anytime on an exchange.
Buying property directly, on the other hand, makes you the owner of your own piece of real estate. You have control over your property, so you can renovate it to enhance its value. However, it’s also your responsibility to generate your own income by searching for and managing tenants.
What are the 7 types of REITs available?
Here are the most common types of REITs to know about:
- Commercial/office REITs — Their portfolios typically include shopping malls, office buildings and related properties, like integrated developments.
- Retail REITs — These are a more specific type of commercial REIT, focusing mainly on retail spaces like shopping malls and shop space. They can also include related spaces for F&B and services.
- Residential REITs — These focus on residential rental properties, including apartments and student accommodation.
- Industrial REITs — The industrial spaces managed by these REITs include warehouses, distribution centres, factories and so on.
- Healthcare REITs — The focus of these REITs is property used by the healthcare industry, including hospitals, medical centres, outpatient facilities and facilities dedicated to R&D.
- Hospitality REITs — These mainly own and manage hotels, serviced apartments, resorts and other types of temporary accommodation for tourists and business travellers.
- REIT ETFs — These are ETFs which mainly track REITs.
How do I choose which REIT to buy?
There are 2 key things to pay attention to when you buy REITs:
- The growth of the REIT, the history of which you can check by looking at annualised returns, and;
- The dividend payouts of the REIT, which are measured in terms of dividend yield.
As with any investment, when buying REITs you need to assess what portfolio needs you’re trying to fulfil.
For example, if you’re looking for a passive stream of income in retirement, pick REITs with a higher dividend yield. On the other hand, if you’re looking for high-growth REITs and can stomach the higher risk, you should select those with a prospect of higher long-term annualised returns.
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