This article explores how to invest in REITs in Singapore.
Real Estate Investment Trusts (REITs) can be loosely described as a mutual fund that invests in income generating real estate assets such as shopping malls, offices, hotels or serviced apartments.
Assets of REITs are professionally managed and REITs are required to distribute at least 90% of taxable income each year to enjoy tax exempt status by IRAS. This means you enjoy tax-exempt dividends once or twice a year that can be reinvested in the REIT if desired.
REITs are favoured by investors who want to get into a form of real estate investing without actually having to buy physical property. Compared to investing directly in real estate properties, REIT investment offers the advantage of liquidity – the ease of converting assets into cash.
REITs offer diversification for an investor’s portfolio that is heavy in traditional equity such as stocks.
REITs are listed on the stock exchange and you can trade a REIT throughout the trading day, and it is easier to buy and sell a REIT than to buy and sell properties. You will trade a REIT with your stock broker, just as you would a stock.
You would analyze and pick a REIT like you would a stock by using methods known as Fundamental and/ or Technical Analysis.
Fundamental Analysis is the process of analyzing a business’s financial statements (assets, liabilities, earnings, cashflow etc) to determine the intrinsic value of the business in relation to its stock price.
Technical Analysis does not look at the health of an individual business but focuses on trends, patterns and forecasting the direction of stock prices through the study of charts including past market data, primarily price and volume.
Read more about REITs here.
Bottom Line: As a new and/ or passive investor, REITs have a place in your portfolio. While easier to pick than individual stocks (since there a limited number of REITs to choose from), you still need to know how to analyze which REIT to invest (using fundamental and/ or technical analysis).
While not recommended as your first few investments, they are worthy of study and you can eventually include them in your portfolio if desired.