REITs are a popular passive income option for many Singaporeans. In our land-scarce nation, we all know real estate prices trend upwards over time. REITs provide investors of all stripes a great way to add this exposure to their portfolios while offering relatively high dividend yields (around 6.6% per year).
What about physical properties?
While owning private property may be the quintessential Singapore dream, there is a lot more to being a landlord than just collecting rent.
Firstly, you need to have enough money upfront to pay the down payment on your property. For a condo unit that’s meant to be your second property, your minimum cash down payment is a whopping 25%.
Moreover, the rental income you earn is not exactly passive. After finding the right tenants, it takes time, money, and effort to manage and maintain your property for the long term.
Rental income from your property is subject to income tax as well. That’s on top of the property tax you have to pay, which is calculated based on the Annual Value of your property.
Why REITs are a hassle-free alternative
Compared with physical properties, REITs provide all the benefits of property ownership without the headache and hassle.
You don’t need a large capital to start investing in REITs. You also get to collect passive income without doing much at all since REITs are professionally managed. The REIT manager and property manager will work together to implement asset enhancement initiatives and optimise rental yields.
Last but not least, dividends paid out by REITs are tax-free. If you receive $10,000 as dividends from your REITs portfolio, you get to keep every cent.
How to start investing in REITs
For a refresher on the basics of REIT investing and the current REITs landscape, these articles list what you need to take note of:
To start investing in REITs, there are three main ways to do so in Singapore.
- Buy individual REITs through your broker
- Invest in REIT exchange traded funds (ETFs)
- Invest in a managed REIT portfolio via Syfe REIT+.
The first option involves paying expensive brokerage fees (up to $25 minimum commission) each time you make a buy or sell transaction. If you want to build a diversified REIT portfolio, you may be better off choosing the second or third option.
Between REIT ETFs and Syfe REIT+, many investors find that REIT+ offers better portfolio efficiency at a lower cost. With REIT+, your funds are used to purchase the 20 underlying REITs held by the portfolio. With a REIT ETF, your funds are used to purchase that particular ETF – itself a product that is traded on the SGX.
Cost-wise, here’s an example of how much it will cost to invest $500 each month in Syfe REIT+ as compared to the Lion-Phillip S-REIT ETF, purchased either through a broker or a Regular Savings Plan (RSP).
** Management fee for Lion-Phillip S-REIT ETF is embedded in the price of the ETF
If you’re looking for an efficient yet low-cost REIT portfolio, you’ll likely find that Syfe REIT+ stacks up better than REIT ETFs.
Syfe REIT+: In collaboration with SGX
Syfe REIT+ is the first portfolio built in collaboration with SGX to offer the iEdge S-REIT Leaders Index to retail investors. Since you cannot invest directly in an index, portfolios like REIT+ provide an indirect investment option.
With REIT+, you get the opportunity to invest in the 20 largest and most tradeable Singapore REITs like Ascendas REIT, Capitaland Integrated Commercial Trust and Mapletree Logistics Trust and more.
Additionally, REIT+ allows you to build up your REIT holdings through regular contributions. Because there is no minimum investment amount and no brokerage fee for each transaction, you can choose to invest any amount you prefer, at any time you want.
REITs can be especially appealing for investors seeking stable dividend income and a unique diversifier to stocks and bonds. Ready to invest in them? Get started with REIT+ here.
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