Investing in Singapore’s Real Estate
Investing in property has always been a top option for those looking to park their money in Singapore. The proposition is even more enticing, given that Singapore is land scarce and has been a top investment destination given its good government, strategic location in Asia and its great infrastructure.
The common conception of how one can invest in property is often limited to buying a physical property, either the public HDB(if you are a local citizen), or owning a private property such as that of a landed-property or a condominium apartment.
However, with the sky-high prices of properties in Singapore, not everyone can afford to own a piece of the property investment pie. An alternative is thus to look at other form of asset class that allows you exposure to the property market here.
The publicly traded equity market here offers some options. Property development companies, which buy land, build units and sell them off, are one way to get exposed.
A relatively recent innovation in Singapore is the real estate investment trust. REITs are investmentinstruments that offer you the opportunity to invest in a professionally managed portfolio of real estate, through the purchase of a publicly-traded investment product. You can invest in a REIT by buying units of the trust, similar to shares of a common stock. The investment objective of REITs is to provide unit holders with dividend income, usually through rental yields and capital gains from the profitable sale of real estate assets.
The 26 REITs listed on Singapore Exchange (SGX) provide a diverse mix of local and international property assets that house industrial, commercial, retail, residential and specialised tenants. These 26 REITs have averaged a total return of 7.7 percent in the first half of this year, with the median return at 7.1 percent.
The great thing about investing in REITs is that you can diversify your risk by gaining exposure to the different sector of the property market as compared to buying a physical property asset.
Comparing the 26 REITs, the three REITs categorised as ‘diversified’ averaged the highest indicative yields, followed by the seven REITs deemed to be investing in industrial-related properties. Of these 26 REITs, 24 have generated gains in the first 19 weeks of 2014 on a price and dividend basis. The REITs that generated the highest gains were Suntec REIT, Mapletree Industrial Trust, Mapletree Commercial Trust andCapitaCommercial Trust. Yields and year to date performances of the 26 REITs can be found here.
While this may sound attractive, it is important to know that REITs, like other investment products, are not completely risk-free. Prices of REITs can be affected by market cycles, such as a fall in the general equities markets, or the introduction of government policies that affect the local property market. However, it does provide a good and affordable investment tool for those who cannot afford a condo but still want an instrument that gives a stream of income.