Companies such as CapitalLand and Mapletree are household names for most Singaporeans, not just for the shopping malls they operate but also the REITs under their name.
REITs sound complex, but they are really just real estate investment trusts that own various types of real estate such as shopping malls, offices, industrial parks, hotels and hospitals.
How REITs work
In general, REITs operate by leasing out the properties they own. Their revenue primarily comes from rental income, 90% of which must be distributed to its unit holders (investors) in the form of dividends. Simply put, if you’re a REIT investor, you’ll likely enjoy relatively steady recurring income for as long as you own the REIT.
REITs pay out dividends either quarterly or semi-annually. One key term to understand is DPU, also known as distribution per unit. It tells investors how much dividends they will get for every unit of the REIT they own.
Apart from receiving dividends, investors can also benefit from capital gains when the share price of the REIT moves higher from its purchase price.
Why invest in REITs
Investing in REITs is an easy way to add real estate to your portfolio and earn passive income.
First, REITs allow you to own a piece of property for much less. A physical property costs millions, but you may purchase REITs from just a few hundred dollars. Between REITs and rental properties, REITs also provide rental income with much less risk, time, effort and initial capital outlay.
Additionally, REITs are great for diversifying your portfolio since they represent a different asset class from stocks and bonds. You also get to invest in multiple properties at once since most REITs hold a mix of assets. For instance, Mapletree Commercial Trust holds VivoCity, Mapletree Business City, and three other properties in Singapore. As such, investing in a REIT reduces the risk that may come with simply investing in one property.
For income investors, the allure of REITs is compounded by the fact that they offer higher dividend yields compared to other asset classes, even in the current low interest rate environment.
The average dividend yield for Singapore REITs (S-REITs) is around 6.6%. But for 10-year Singapore Government Bonds and 12-month bank fixed deposit rates, their yields are currently about 1% and 0.5% respectively.
How to invest in REITs
Similar to stocks, S-REITs are listed on the Singapore Exchange (SGX). You can buy shares in a REIT the same way you’d buy shares in any other listed company.
There are six main REIT segments you can invest in:
- Commercial / Office REITs
- Retail REITs
- Industrial REITS
- Hospitality REITS
- Healthcare REITs
- Data centre REITs
While you may purchase individual REITs to get a fully diversified portfolio, a much easier way is to invest in Syfe REIT+. The portfolio invests your funds in 20 of the largest REITs in Singapore, covering all real estate sectors from retail to commercial to healthcare.
If you were to build your own portfolio of 20 REITs, you’ll have to pay brokerage fees for all 20 transactions. The minimum brokerage fee in Singapore can go as high as $25, so that’s a lot you’ll have to pay just to start investing. And when you sell, you’ll incur similar costs for each REIT sold.
When you invest in REIT+, you pay $0 in brokerage or trading costs, no matter how many transactions you make. If you plan to invest regularly in REITs, Syfe REIT+ could be the ideal portfolio for you.