Investing in real estate – flipping properties or simply renting them out – can be very lucrative, but many people find the initial capital and time commitment too high to get started.
For investors who want an easier way in, Singapore real estate investment trusts (S-REITs) offer exposure to different types of properties in Singapore without the hassle and cost commitment of managing those properties for sale or rent.
Characterised by their relatively consistent dividend payouts, S-REITs are a useful addition to any portfolio. If you want to get into S-REIT investing, here’s everything you’ll need to know.
Table of Contents
- What Are S-REITs?
- Roles Within a S-REIT
- S-REITs vs Physical Property, What Are The Benefits?
- Types of REITs Listed in Singapore
- How to Choose a Good REIT
- Are Singapore REITs a Good Investment?
- How to Buy Singapore REITs
What Are S-REITs?
S-REITS are investment trusts that invest in a portfolio of income generating assets such as shopping malls, offices, industrial parks, hotels and healthcare properties.
Most of these properties are based in Singapore. S-REITs pool together money from many different investors to purchase these properties, which are then leased out to tenants to generate revenue (primarily rental income).
S-REIT investors, also known as unit holders, usually receive this rental income in the form of quarterly or semi-annual dividends. The average dividend yield for S-REITs is about 5% to 6%.
Apart fromdividends, unit holders typically also earn returns through capital gains when the price of the REIT appreciates as the value of properties increases, and when the REIT is sold at a higher price than it was purchased for.
Similar to stocks, S-REITs are listed on the Singapore Exchange and you can invest in them the same way you would in a stock. But do note that S-REITs have a structure that is different from listed companies.
Roles Within a S-REIT
You can think of a typical S-REIT structure as such. The day-to-day running of the properties held by the S-REIT is managed by a property manager whose responsibilities include collecting rent from tenants and implementing promotional programmes to achieve healthy occupancy rates.
But who appoints the property manager?
That’s the role of the S-REIT manager, otherwise known as the trust or asset manager. The S-REIT manager sets the strategic direction of the S-REIT, which can include identifying assets that can be acquired or sold, and planning asset enhancement initiatives.
The S-REIT sponsor is the controlling company behind the S-REIT, and typically owns both the property manager and REIT manager as well. A sponsor can be a property developer, as in the case of CapitaLand which backs CapitaLand Ascendas REIT (CLAR, SGX:A17U), Singapore’s largest industrial REIT.
Finally, there is the role of the trustee. The trustee holds the assets of the S-REIT on behalf of unit holders and is responsible for administering the S-REIT in accordance with the provisions of the trust deed.
S-REITs vs Physical Property, What Are The Benefits?
Compared to investing in physical property, S-REITs offer a more accessible way to gain exposure to property markets in Singapore. Here are some of the advantages of investing in S-REITs:
| Category | S-REITs | Physical Property |
| INITIAL INVESTMENT | Low capital requirement | High capital requirement |
| EFFORTS | Minimal to no management needed | Self-managed, high effort required |
| LIQUIDITY | Highly liquid | Low liquidity |
| DIVERSIFICATION | High diversification | Limited/No diversification |
| TAX | Dividend received non-taxable | Property and income tax applicable |
- Low capital requirement
The biggest barrier to aspiring property investors is the initial capital requirement. Not only is private property in Singapore quite expensive, but there are also numerous additional costs beyond the sticker price. S-REITs, on the other hand, are much more accessible in terms of capital outlay. The smallest investment amount on the SGX is just 100 shares, making them attractive to investors with limited savings.
- Relatively low efforts involved
S-REITs are managed by professional REIT managers who handle the tenancy mix, leasing, and financing. While S-REIT investors are encouraged to research S-REITs before investing, they are not required to manage the underlying properties. This allows investors to collect income more passively.
- Highly liquid
Physical properties are highly illiquid, and transactions often take months to complete. In contrast, buying and selling S-REITs is instantaneous online. You can even do it conveniently on your mobile phone. This gives investors the ability to liquidate their investments quickly if needed.
- Diversification
Traditional property investments often require committing a large amount of capital to a single asset, making diversification difficult. In comparison, a single REIT already invests in multiple properties, potentially across different countries. You can further diversify your investments by holding several different REITs simultaneously.
- Tax efficient
Another key advantage is the tax benefit of investing in S-REITs. For Singaporean investors, distributions from S-REITs are not taxable; they are not subject to income tax. On the other hand, investing in physical real estate can incur property tax. In addition, rental income can be subject to income tax.
Types of REITS Listed in Singapore
REITs allow you to invest in a wide variety of real estate segments. Here’s a snapshot of the types of Singapore REITs (S-REITs) you can invest in:
- Diversified REITs
- Diversified REITs adopt a broad approach to real estate investing; rather than invest in a specific property type (e.g retail), these entities own and manage a diversified portfolio of properties spanning a range of industries such as residential, data centre, and retail.
- E.g. CapitaLand Integrated Commercial Trust
- Industrial REITs
- Real estate under industrial REITs include warehouses, distribution centres, and manufacturing centres. Industrial REITs experienced a boom in recent years that was buoyed by the unprecedented growth in e-commerce that saw a significant increase in the demand for warehouse space.
- E.g. Mapletree Industrial Trust
- Data Centre REITs
- Properties owned by data centre REITs are designed to safely store and process data. Given the exponential growth of tech like AI and cloud computing, data centre REITs are positioned to be crucial players in the tech-driven world.
- E.g. Keppel DC REIT
- Retail REITs
- Retail REITs typically own properties that house a mix of anchor tenants (like major department stores or supermarkets) and smaller, specialty retailers. The performance of retail REITs is strongly influenced by consumer spending patterns and general economic health.
- E.g. Frasers Centrepoint Trust
- Commercial/Office REITs
- Office REITs own and manage office real estate such as office buildings, office parks, or co-working spaces. Like retail REITs, the performance of office REITs is driven by economic conditions; an economic downturn generally suggests poorer performance by the REIT while economic growth boosts performance.
- E.g. Capitaland Integrated Commercial Trust
- Hospitality REITs
- Hospitality REITs invest in hotels and resorts. The performance of hospitality REITs is closely tied to the travel and tourism industry, including factors, such as economic conditions, consumer travel habits, and seasonal demand. Economic upturns typically boost travel and hotel occupancy rates, while downturns can have the opposite effect.
- E.g. Far East Hospitality Trust
- Healthcare REITs
- Healthcare REITs invest in a variety of healthcare-related facilities such as hospitals and healthcare research facilities, benefiting from the steady demand for medical care and senior living services.
- E.g. ParkwayLife REIT
There are currently 42 S-REITs listed in Singapore but that does not mean all the REIT properties are located here. Over 90% of S-REITs own properties outside of Singapore. For example, CapitaLand India Trust invests in office real estate in the United States.
How to Choose a Good REIT to Invest In
As with any investment, it’s important to do your homework before selecting a REIT to invest in. Here are some key indicators you should look at before making the decision:
Quality of the REIT Properties
Do a check on the underlying properties of the REIT. Are the properties located in prime locations? Is the property sector a high-growth sector? These factors indicate stronger rental income for the REIT.
In addition, who are the tenants of these properties, and do the properties depend on just a few anchor tenants for most of their revenue? Typically, properties with a well-diversified tenant profile made up of established corporations will tend to be more resilient.
Weighted Average Lease Expiry
Weighted average lease expiry (WALE) measures the overall tenancy risks of a particular property and is used by investors to assess how likely the property will be vacated and by extension, how secure the REIT’s rental income will be. REITs with a longer WALE are likely to have greater long-term income stability.
Track Record and Strong Sponsor
A good REIT management team creates greater value for unitholders. Look for REITs with a strong track record of asset enhancement initiatives such as mall upgrades, which in turn, can improve the tenant mix.
A strong sponsor will also be able to feed the REIT with a pipeline of quality assets in the years to come while providing the necessary financial support through an economic downturn.
Are Singapore REITs a Good Investment?
For retail investors, the main draw of REIT investing is the consistent and attractive dividend income they stand to earn. S-REITs are required to pay out at least 90% of their income as dividends. As at 31 August 2024, the dividend yield of iEdge S-REIT Leaders Index was 5.8%, compared to the benchmark 10-year Singapore government bond yield of 2.7%.
REITs are also an affordable way for retail investors to invest in real estate. The cost of investing directly in a large shopping mall may be prohibitive for many, but a REIT allows you to own a piece of that property for much less.
The cost of investing directly in a large shopping mall may be prohibitive for many, but a REIT allows you to own a piece of that property for much less.For investorsdeciding between REITs and rental properties, REITs typically provide rental income with much less risk, time, effort, and initial capital outlay.
Additionally, REITs are a great tool for diversifying your investment portfolio since they represent a different asset class from stocks and bonds. Similar to an exchange-traded fund (ETF), you get to invest in multiple properties at once through a REIT. This reduces the risk that may come with simply investing in one property.
As with all investments, there are still certain risks involved when investing in REITs. To minimise these risks, here’s what to look out for.
How to Buy Singapore REITs
Well-run, financially strong REITs are an attractive addition to any portfolio.
With their long-term capital appreciation potential and ability to generate fairly consistent dividends across all market conditions, REITs are an attractive investment for investors seeking to generate passive income.
You can invest in S-REITs either by purchasing an individual REIT or REIT ETF through a brokerage platform like Syfe’s Brokerage.
Alternatively, you might want to invest in REITs via a managed portfolio like Syfe REIT+.
Syfe’s 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 toinvest in the 20 largest Singapore REITslike 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.
