MQTrader Education Series
MQ Trader - Benefits of investing in REITs
MQTrader Jesse
Publish date: Thu, 05 Aug 2021, 06:10 PM
What is REIT?
Based on Investopedia, A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modelled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves.
Benefits of Investing in REITs
In this blog, we will walk through the benefits of investing in REITs and which market is worth investing in.
Affordability
It’s always exciting to buy property - be it your own home, property for your own business, property for investment etc. However, it’s not easy to own property due to the high selling price of the property, thus making it a huge commitment to own real estate, with down payments, loans, maintenance costs etc.
Investing in large scale real estate businesses such as data centres, hospitals, shopping malls, warehouses with individual funds could be even far fetched for retail investors. Thus, REITs have come into the picture where they focus on real estate investment.
The beauty of REITs is the concept of distributing a land/property into very small pieces, so everyone can purchase “pieces” of the land/property depending on the capital that is available for investment. People who have more capital can purchase more REITS, which is the right of getting the dividend from the property investing business. People who have limited capital can purchase fewer REITs to kick start the investment in the real estate business, making it affordable for everyone that wishes to invest in real estate!
Liquidity
As mentioned in the previous section, REITs are more liquid compared to physical properties as investors can invest in REITs just like investing in stock in the stock market. Units of listed REITs are readily converted to cash when REITs are traded on the stock exchange.
The price of REITs will move according to supply and demand just like other equities listed on the stock exchange. Investors can participate or exit anytime through an online stock trading platform with just a few clicks away. This makes REITs investment be high liquidity as compared with conventional real estate investment.
A stable stream of income
REITs focus all their investment on real estate businesses, which makes REITs most of the revenue generated through rental.
To ensure the benefits of all investors in REITs, there’s a policy on REITs where the management of REITs will need to pay a fixed percentage of net profit as dividend annually to their investors. For example, REITs listed in Bursa Malaysia must distribute 90% of their yearly taxable income as dividends if the REITs would like to enjoy the income tax exemption from the government.
REITs in Singapore are also required by regulations to redistribute at least 90% of their taxable income each year. Based on the past track records, REITs listed in SGX have been generating a stable 3% - 8% dividend yield annually.
Exposure to various kinds of real estate
REITs are a type of investment that generates a stable stream of revenue, there is various type of REITs to cater for different business needs, for example:
- Healthcare
- Warehouse
- Datacentre
- Industrial
- Office
- Retail
- Hotels
- Commercial
- Diversified REITs
Picking the right REITs is crucial for investors that want to invest in REITs. Different business models shall have different performances. For instance, warehouse and data centre REITs have had steady growth and bode well under this pandemic for the past 1 year due to the increase in demand for logistics services and IT services. On the other hand, we could see that retail and hotels suffered for the past 1 year due to COVID-19 travel restrictions, affecting the rental yields and hospitality industry.
Therefore, by investing in different types of REITs, it is good to risk diversification towards your portfolio.
Professional management
REITs are professionally managed by professional managers, and they are a team of experts that have the expertise to manage properties that minimize the cost of the company and maximize the profit earned by the company.
Downside? Yes, they do charge fees hence it’s always important to read out the reports released by the management team and make decisions based on the data that has been released.
Invest now in the 2nd biggest REITs market in Asia!
Do you know that Singapore is the 2nd largest REITs market in Asia after Japan?
Here’s the table for you to break down why you should invest in REITs rather than investing in Real Estate!
Source: New Academy of Finance
In summary, there are a lot of benefits to investing in REITs. Investment in REITs cost a fraction of the cost of direct investment in real estate, where you can start investing with minimal capital and minimal effort as the professionals do all the work for you.
Interested to trade REITs listed in SGX, you can open a trading account that allows you to explore more investment opportunities!
Why choose Singapore as a beginning for REITs Investment.
1. Singapore has one of the largest REITs & Property Trust markets in Asia.
2. All the REITs listed in Singapore, over 80% of it hold overseas assets, which offer an investor access to global real estate assets and across various sub-segments including, industrial, hospitality, office, retail, data centre and healthcare. Holding different overseas assets can diversify the country's risk which only will occur in a certain country.
3. Singapore REITs have an average dividend yield of 5.5%
In conclusion, as there are many benefits to REITs, market investors can invest in REITs to accumulate their wealth. Investment in REITs is a long-term investment to get the dividend. Other than that, REITs investment can also provide another way for investors to hedge by inflation. Therefore Singapore REITs market is a good way to start your REITs investment.
Want to know more about the SGX market? Visit here to learn more!
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Disclaimer
This article does not represent a BUY or SELL recommendation on the stock covered. Traders and Investors are encouraged to do their own analysis on stocks instead of blindly following any Trading calls raised by various parties in the Internet. We may or may not hold position in the stock covered, or initiate new position in the stock within the next 7 days.
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Ride The Bull Short The Bear
CS Tan
4.9 / 5.0
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
calvintaneng
Not all reits are good
Only Indusrtrial Reits rent to ECommerce is good
Commercial Malls & Office will be no good due to MCO lock-down
Best still Palm oil if you look for dividends
Palm oil being Cash Crops now overflowing with profits can give even special dividends
2021-08-05 19:58