BT INVEST

A Personal Finance and Investment Arm of The Business Times
MARKET TODAY:

Archive

5 Reasons Why You Should Invest in S-REITs

When I was eight years old, I remember seeing my grandma taking out her savings from a container tin she hid under her bed whenever she needed the money. Today, that image can only be seen on TV shows as most of us now keep our savings in a bank.

The bank pays an interest for every dollar we deposit but we know the rate is outrageously low in Singapore; less than a percentage per annum! You might consider depositing your money in foreign countries to earn a higher interest rate; Malaysia and Australia offer interest rates around 3%. However, you will need to think twice when you take currency exchange into account. From 1988 to 2015, the Malaysia ringgit and Australian dollar have depreciated by approximately 55% and 28% against the Singapore dollar respectively! That leaves us little choice but to keep our money with a local bank and you’re back to square one and pathetically low interest rates.

If you are still searching for a safe place to park your money and still earn a steady, higher return, then Singapore Real Estate Investment Trusts (S-REITs) may be just what you’re looking for. So why S-REITs? Let me share with you 5 distinctive benefits:

#1 Singapore is Safe & Stable

We all know how expensive property can be in Singapore. In an island state with limited means to expand, property prices here will only continue to go higher and higher in the long run – and investing in REITs is a great way to invest in property.

But beyond the fact that Singapore is so land scarce, the only reason why property prices keep rising is because Singapore is particularly safe and stable place to live in. Because of this, business and investors dare to invest in the country driving economic growth, prosperity and rising property prices.

#2 Tax Free

Singapore REITs are able to offer exceptionally high yields due to incentives given by the government. REITs are exempted from the normal 17% corporate tax rate if it distributes 90% of its distributable income to investors as dividends. Because of this, REITs earn a higher income and can afford to pay out higher yields. And another piece of good news — the recent 2015 Singapore budget has approved and granted a tax-break extension for REITs for another five years!

#3 Well Diversified

If you own a physical property, your risk is concentrated in one area. If the property you own is somehow inexplicably swallowed up by the ground, your entire asset is gone (exaggerated example I know, but you get the point).

On the other hand, a REIT owns various types of real estate assets ranging from malls, offices, industrial parks, hotels, and hospitals that are located in multiple locations and countries. Therefore, your risk is well-diversified.

For instance, if you like the idea of owning a shopping mall in Singapore, then you can consider Frasers Centrepoint Trust that owns malls like Centrepoint, Causeway Point, Changi City Point and more which are all diversified island wide.

Since its listing in 2007, Frasers Centrepoint Trust has netted cumulative dividends of around 68% — and that’s excluding capital gains! If you invested $10,000 during its IPO, you’d have already collected $6,800 in dividends alone while still being entitled to more future streams of dividends. In another four years, you can expect your initial investment to break even, which means your unrealized capital gain and future dividends is all pure profit!

FCT yield

Estimated annual dividend yield of Frasers Centrepoint Trust based on 2007 cost

#4 Regulated

The Monetary Authority of Singapore (MAS) under the Collective Investment Scheme Regime of Securities and Future Act governs Singapore REITs. MAS regulations state that a REIT’s total borrowings cannot exceed 35% of its total assets and they can only borrow up to 60% only with a credit rating from one of the three largest rating agencies (this regulation will change to a flat 45% from Jan 2016 onwards).

On top of that, REITs are not allowed to spend more than 10% of its total asset value on new developments (this regulation will change to a 25% from Jan 2016 onwards). So the risk of a REIT defaulting on its debt is low and managed from a regulatory level.

At the same time, it is not wise to assume that all REITs in Singapore are safe to invest in. Despite being well-regulated, there are cases where a REIT manager can mismanage a REIT and lead it into financial trouble.

#5 High Yield

Singapore REITs averaged a 6% yield in 2014. Some REITs even have yields as high as 8% (this doesn’t mean you should pick a REIT just because it has a very high yield. You need a proper investment process to select the best REITs in Singapore). For such a safe and stable investment that pays dividends four times a year, the yield from REITs are far higher compared to other stable investments like bonds and fixed deposits. Furthermore, REITs also give you the potential for capital growth increasing your overall gains even more.

If you’re an income investor interested in adding REITs to your portfolio, remember to check out our S-REIT data section for information on distribution yield of all Singapore REITs and more.

Do you want to receive stable, passive income from your investments year after year like clockwork? Then discover the *8* steps to create your own 'Dividend Machines' and build multiple streams of passive income from dividend stocks and REITs. Build your own dividend machines now

Are you looking for a formula that can consistently pick out the best companies to invest in and make you a LOT of money in the stock market? If you are, then this might finally be the answer you've been looking for. Because this is the same exact formula we used to create 7-figure results in a single stock portfolio - and we did it in just two years. Find out what this formula is right here.

Do you think that it's nearly impossible to double or triple your investment in blue-chip stocks? If you want the stability and security of a blue-chip company but are looking for the supercharged returns of smaller, high-growth stocks, then we want to tell you that it is possible. In fact, we want to show you how we uncovered one company that's a market leader in its industry... but was still growing its revenues by up to 20.4% a year and its net profits by up to 39.8% a year. Click here to find out which company and download a FREE report that shows you how we made 243.5% returns in this "super" investment.

If you enjoyed this article, get email updates (it's free).

This is neither a recommendation to purchase or sell any of the shares, securities or other instruments mentioned in this document or referred to; nor can this course material and/or document be treated as professional advice to buy, sell or take a position in any shares, securities or other instruments. The information contained herein is based on the study and research of the Fifth Person Pte Ltd (“the Authors”); and are merely the written opinions and ideas of the Authors, and is as such strictly for educational purposes and/or for study or research only. This information should not and cannot be construed as or relied on and (for all intents and purposes) does not constitute financial, investment or any other form of advice. Any investment involves the taking of substantial risks, including (but not limited to) complete loss of capital. Every investor has different strategies, risk tolerances and time frames. You are advised to perform your own independent checks, research or study; and you should contact a licensed professional before making any investment decisions. The Authors make it unequivocally clear that there are no warranties, express or implied, as to the accuracy, completeness, or results obtained from any statement, information and/or data set forth herein. The Authors, its related and affiliate companies and/or their directors, executives and employees shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.
 
Robin Han
Rusmin Ang

Rusmin Ang is an equity investor and the co-founder of the online investment magazine The Fifth Person. He is also the co-creator of The Investment Quadrant, an online multimedia stock investment course where students can learn how to invest profitably in the stock market. Rusmin has been featured multiple times on 938LIVE as a guest expert on MoneyWise and is on the speaking circuit for CIMB Securities (Malaysia) and has spoken at events in Penang, Sibu and Kuala Lumpur. Rusmin is also the co-author of Value Investing in Growth Companies which is internationally published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com,Amazon.co.uk, Barnes & Noble and Apple's iBooks. If you're interested to learn more about stock investing, you can join The Fifth Person Newsletter and receive free weekly insights on how you can generate higher returns and dividend income from the stock market.