Singapore REITs investing should be an easy task for me! I had experience in buying Malaysian REITs before. I made some handsome profits in investing CMMT (CapitaMall Malaysia Trust) IPO back in 2010.
Why Singapore Reits?
I decided to sell most of my properties in 2016-2019 and invested in Singapore REITs. There are a few reasons why I decided to do so,
- I thought SGD is a strong currency, it would be good in future I get some passive income in SGD.
- Managing Malaysian rental properties could be your worst nightmare if you do it alone. I would let you know the stories in my coming posts.
Brick and mortar is always my favorite, investing REITs is like investing in physical properties minus the headache while collecting your rental. You can sell your REITs anytime in the market and it is a very liquid asset.
Owning part of Vivo City , 313@Somerset , CapitaGreen in Singapore makes me a proud Malaysian since I have nothing else to boost about! Now I can tell my Singaporean friends, I own part of Singapore properties as well out of my ‘kiasu’ mentality!
It was a great idea I thought to move some MYR to Singapore to be invested in REITs and get passive income every quarterly.
I made my first move in 2017 and opened a DBS account to make my purchase.
What are REITs?
REITs ( Real Estate Investment Trust) are public listed companies/trusts that pool investors’ money to buy, operate and manage properties. When you invest in a REIT, you actually own a small fraction of all properties owned by that specific REIT.
There are a few types of REITs in Singapore- retail, industrial, healthcare, commercial, data centres, logistics, mixed etc depending what kind of properties the REITs own.
The manager of the REIT collects rentals from the property tenants and after all the expenses, the manager gives out at least 90% ( required by law) of the income to unit holders ( shareholders). The yield can range from 3-10% per annum.
You get consistent passive income by investing in REITs. The properties and rental collections are managed by professionals. As a Malaysian, you own part of Singapore iconic buildings like Raffles City, Vivo City and Capital Tower!
My Mistake in Reits Investing
The very first common mistake investors do in REITs investing is looking at the yield return.
Some Reits offer very attractive yield of up to 8-10%! NEVER buy a REIT based on the yield alone because it might be a value trap!
I bought my first Singapore REIT in 2017 and the price dropped 50% after 3 months. Initially the yield was 10% but dived to 4% even though the unit price had dropped a whopping 50%!!
I lost almost SGD10k in 3 months!
REITs can give you headache too
I thought my headache of collecting rentals was over until I found out REITs actually have their own problems too.
Some Reits like to raise equity by doing private placements which is not fair to minority shareholders.
As a Malaysian, you could not exercise your REITs right issues unless you have a Singaporean mailing address. For Singaporeans, it is a-few-clicks job in front of any ATM in Singapore.
You have to exercise your right issues if you think the REIT manager makes good yield-accretive acquisition because you average down your purchase price of the REIT.
Not being able to exercise my rights as a Malaysian makes me a loser in long-term.
Even though I figure out later the way to do it without a Singaporean address, you need to be a savvy REITs investor to make the correct purchase every time.
There is no free lunch in this world
I learn my mistake in REITs investing. There is no free lunch in this world unless the lunch is prepared by your parent!
Before investing in any assets, spend time and learn your lessons from books, blogs or even talk to anyone that has done it before.
You might even need to attend courses before making your first move. It is a wiser choice to spend a few hundred now rather than losing thousands later.
Why did the REIT drop so much in value? Any insight there?
Dear Fiholic,
Thank you for your question, there are so many reasons why a REIT value can drop significantly. Some bad news about the sponsor, downgrading of sponsor credit rating, depreciating trend of currency which the REIT get the income from, Covid-19 pandemic, a bad acquisition etc etc.
There are many considerations to look at if you are interested in buying.
Anyhow, I think REITs are still an easier business model to understand than IT companies, banks or any listed companies. That’s the reason why I choose REITs investing in 2010-2020.
But I have partially given up REITs too.I mainly invest in ETFs/index funds instead now.The good part is i don’t need to read the REITs quarterly reports again.
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Dear Dr. Goh,
Having been a long time REIT investor myself, I can understand your frustration in REIT investing. The challenge with REITs is that while the fundamentals of real estate take a long time to change, the REIT market is influenced by sentiment in the stock market. For instance, during this covid period, globally a lot of REIT prices fell and I personally took the opportunity to acquire as the market has factored in the thinking that offices, malls, residences,etc. will be severely impacted in the long term. While there is some level of truth to this, I think the critical factors in long term REIT investing are
1. Investing in REITs with low leverage (<40% debt to market to market cap)
2. REITs with strong cash balance to withstand the crisis, and lower rent collection during this period
3. REITs with longer WALT (Weighted Average Lease Tenure) , ie longer rental terms as they are less susceptible
Fortunately unlike 2008-2009, REITs currently are not as highly leveraged as back then. Hence, I believe that REIT prices will eventually bounce back. But, the key is to select REITs with strong moats.
Globally, I like the following REITs
1. Realty Income
2. W.P. Carey
3. STORE Capital (A Warren Buffet invested company)
4. Mapletree logistics Trust
5. Parkway Life Reit
Though, key to get them at the RIGHT PRICE. May 2020 was the perfect opportunity to buy them cheap. Now, prices have increased and they are not as attractive. But, in the next few weeks, as Covid cases rise it may be a good opportunity to pick up some Global REITs.
Dear RealFIRE,
Thanks for your comments, I made a few mistakes investing in Singapore and HK REITs and I have learned my lessons. I might want to teach my readers about a few tips while looking at some REITS to buy in future. As you said, leverage ratio, diversification of portfolios, strong cash flow , WALT are a few parameters to look at. I also think sponsor of the REIT plays a crucial role.
I put my SGD into buying Singapore REITS and banks and I am getting very good passive income every month. Unfortunately I made mistakes in my initial purchase and I am still sitting on losses.
For me, as an average and non financial investor like me, it is safer just putting money in ETFs because no matter which REIT you buy, you still need to read their quarterly report and follow your REIT acquisition etc which are time consuming.
I certainly welcome your input and I know a lot of people out there especially my Singaporean friends who are making tons of money from REITS!!