Beginner’s Guide to REITs in Singapore

One of the hardest investment programs to dabble in Singapore is property investment due to the high valued real estate in the country. Owning property in Singapore is something of an achievement as most citizens struggle to even afford their HDB flats but with the introduction of Real Estate Investment Trust (REITs), Singaporeans are able to invest and earn some income via property investing.

What are REITs?

Real Estate Investment Trust (REITs) or sometimes known as Singapore Real Estate Investment Trust (S-REITs) is an investment method that uses shares that are focused on real estate. Companies that sell their shares based on REITs predominantly manage and handle property that is leased out for rentals. Investors who buy shares from REITs companies can be considered as co-owners of the real estate asset and are entitled to receiving the rental income that is collected.

REIT investment is very suitable for civil servants, working professionals or entrepreneurs who want to invest their money in property-based investment but do not want to deal with the hassle that comes from the traditional way of owning a property. It is relatively easy to purchase REITs shares. You will first need to establish your SGX CDP and brokerage account, and if you already have the CDP account, then you can start looking for potential REITs related shares to start your investment.

You have two choices of REITs investment in Singapore. There are individual REITs and ETF REITs to consider. ETF REITs are essentially a collection of passive funds that work to emulate the results of an underlying index. There are more than a few of these ETF REITs that are available in the SGX to consider. A standard REITs- based investment opportunity in the SGX is influenced by real-time performance tracking of property investment in Singapore. This index is a free-float market that is reviewed twice annually in March and September. 

For an example of an ETF REIT that is available in SGX, you may refer to the NikkoAM-Straits Trading Asia ex Japan REIT ETF; one of the first of its kind listed on the SGX. This ETF REIF may help the stakeholder to broaden their investment exposure to the Asian-based REITs. 

Generally, there are six sectors of REITs in Singapore; retail, residential, industrial, office, healthcare and hospitality REITs. Here’s a quick breakdown of what these REITs are:

1. Retail

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Shopping malls fall into the retail category and income is generated by the mall leasing the shops to tenants. It is recommended to first research the current economic climate and health of the retail industry because a renter who defaults on payment will affect your investment payout adversely.

2. Residential

Housing and rental apartments fall under this category, and when considering this type of REIT for investment, the location of the property plays a huge part in the success of your investment. Major residential REITs prefer to focus on urban areas where the affordability to purchase a home is low, so there will be a large amount of renters; this makes it easy to rent the property, and there will be a good flow of tenants.

3. Industrial

Warehouses, specialised factories and distribution centres are just some of the examples that fit in this category of REITs. Industrial REITs can either be a big win or loss to an investor; due to the sheer size of space that is being rented. The payout will be good but losing a tenant will cause the loss of significant income and it is also more challenging to find a replacement compared to retail or residential space tenants.

4. Office

Office buildings are part of the industrial sector of REITs. Rental income is garnered from renting the office space to large companies. Some investors prefer industrial-based REITs due to the long-term contract that is the standard norm when renting offices to companies but there is a risk attached to this REIT as this sector is very dependent on the economic growth of the country. Any negative changes will have an impact on your investment if rental payments cannot be made.

5. Healthcare

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The necessity of having healthcare-related buildings like hospitals, medical centres, retirement homes and nursing homes provides very good opportunities for property investing like REITs. The healthcare system is an industry that will stand the test of time due to its importance. It is crucial to invest in a REIT company that has some experience in healthcare.

6. Hospitality

The tourism industry plays a big part in this type of REIT investment in Singapore as hotels, motels and serviced apartments fall into this category of property investment. The more tourists travel through the country, the better the return of this investment – provided that the property is situated in a good location that encourages tourism-related activities.

Benefits Of Investing In REITs

1. Liquidity

REITs-based investments are highly liquid, and it takes almost no time for a stakeholder to enter or leave this type of property investing as compared to conventional real estate investing. REITs are share-based, so the investor needs to decide to buy, sell or keep unlike owning a real property which has extra costs like maintenance and lawyer fees attached to it. 

2. Minimum Capital

The minimum required on an outlay for REITs is usually 1,000 shares, and sometimes the cost of these shares might not even exceed $1,000. The minimum amount required to buy a property in Singapore would be an upwards figure of $500,000. By comparing the initial amount of investment required for REITs to real-time property ownership in Singapore, it is no wonder that REITs is a more beneficial, less hassle and the more lucrative option of property investing.

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