REIT is one of the key topics of Property Investment Singapore because Singapore REITs are also considered one of the investment vehicles that is favored by many Singaporeans. REITs stand for Real Estate Investment Trusts or they are also commonly referred to as S-REITs in Singapore. Singapore listed REITs offer investors access to a diversity of real estate assets including retail malls, office buildings, industrial properties, hotels, serviced apartments and hospitals in Singapore as well as in other parts of the world.
What are Singapore REITs?
Singapore REITs are often termed as instruments that offer Singaporean investors the opportunity to invest in a professionally managed portfolio of real estate, through the purchase of a publicly-traded investment product via Singapore Stock Exchange. Individuals invest in a REIT by purchasing units of the trust, similar to shares of a common stock. Singapore REITs are regulated as Collective Investment Schemes under MAS’s Code on Business Trusts. The first REIT being setup is CapitaMall in July 2002. Some of the regulations that S-REITs have to adhere to includes:
- Maximum gearing ratio of 35%
- Annual valuation of its properties
- Distribution of at least 90% of its taxable income
- Restriction to certain types of investments the Singapore REITs can make
Singapore REITs benefit from tax advantaged status where the tax is only payable at the investor level and not at the REITs level.
Why You Should Invest In Singapore REITs?
- Focus on generating income as regularly as possible, can translate into benefits for investors.
- Diversification of owning multi-property portfolios with diversified tenant pools help to reduce risks.
- As an REIT investor, you can enjoy a tax exempt dividend.
- It is much easier to liquidate REITs than trying to sell properties.
- Singapore REITs are affordable in much smaller quantum per lot.
How are Singapore REITs being Structured?
Singapore REITs are structured as trusts and thus the assets of a REIT are held by an independent trustee on behalf of unit holders. Through an Initial Public Offer (IPO), money is being raised and used by the listed company to purchase the related properties for rental income purposes. Unit holders will get their dividends from such rental income. The purchased properties are managed by a property manager and the Singapore REIT itself is managed by a REIT manager for a fee. These property assets are to be held by a trustee for the unit holders. You can see that most of the Singapore REITs have annual managers’ fees, property manager’s fees, trustees’ fees and other expenses that will be deducted from their cash yields before distributions are made. In Singapore, REITs are required to distribute at least 90% of taxable income each year to enjoy tax exempt status by IRAS (subject to certain conditions). Some REITs which hold overseas properties in foreign jurisdictions may also be subject to the taxation by the respective countries.
Investment Objectives of Singapore REITs
The investment objective of Singapore REITs is to provide investors or unit holders with dividend income, usually from rental income, and capital gains from the profitable sale of real estate assets. Apparently, Singapore REITs may seem to be attractive and safer from investment perspective but they are not 100% risk free. Like stocks, the unit value of the Singapore REITs can fluctuate. Therefore, it is important for you to understanding what REITs are.
What To Look Out For Singapore REITs?
Singapore REITs are not 100% risk free because it depends on your time of entry and they are exposed to political and regulatory risks. You should understand your own risk appetite and investment time horizon. Do your own diligence by looking at the prospectus of the Singapore REIT that you wish to invest in. These include the following:
- information on the management company and trustee, their experience and track record;
- investment and growth strategy
- information on properties to be put in the REIT in terms of geographical and sector focus;
- income distribution policy and typical paid out schedule.
- other related fees and charges by REIT
Risks of Singapore REITs
- Unit value of the REIT will fluctuate due to the market condition.
- Lower rental income or lower renewal income or growing debts will result no dividend payout.
- Less diversified portfolio of properties will result higher risk of loss or no dividend payout
- Less flexibility for the REIT to vary their property portfolio and it takes longer time to adjust to the market condition.
- Since 90% of the income can be distributed to the unit holders, this will imply the ability of the REIT to repay their loans is much lower and this may often lead to higher refinancing risk.