Is REIT investing better off than property investment in Singapore?
Yes but it depends on what you are looking for, i.e. whether you are into dividend income or into mid term capital growth.
To many Singaporeans, buying a property in Singapore can be their biggest financial commitments ever. And many of us are still unable to afford private properties which may cost near or over $1 million.
Affordability of a private property is a common issue to many Singaporeans. Does it mean that you can’t own any of them in your life time? If you think pessimistically, you are probably right, i.e. you cannot own any private or commercial property in your lifetime. If you think more optimistically, you might have think of REIT Investing is the way to go.
Advantages of REIT Investing
- Dividend income of REITs works like a cash machine. My basic principle in REIT investing is at least more than 5% annually.
- REIT investing income usually come in every quarter.
- Distribution profits of REITs to investors will need to be at least 90% of its profits.
- Instant diversification of properties portfolio to lower your investment risks
- Its performance is driven by competitive market.
- Level of corporate transparency is high since it is about how well the assets can bring in rental income.
- There is higher liquidity in REITs than in a property. You can divest them quickly just like stocks. But this is not the case for properties.
- The cost of owning REITs is lower than that of owning a private property. To invest in REITs, you pay for brokerage fees. But property investing will involve high agents fees and stamp duties from government.
- Regulatory risk for investing in REITs will be much lower as compared to property investing. REITs do not have cooling measures, right?
Disadvantages of REIT Investing
- Capital growth of REITs may be limited because 90% of its profits go to investors. There is only merely 10% of its profits goes into re-investing.
- REITs focus on only property sectors and they are prone to the impact of property cycles.
- REITs are highly leveraged and hence their bottom line may be affected when there is a surge in interest rate.
Start Investing in REITs To Earn Passive Income
Well, REITs are always be part of my investment portfolio. I simply in love with these cash machines. I am currently owning a few of them which include Ascendas India Trust. This REIT has given me more than 30% capital growth just on paper and generates a decent dividend income consistently for many quarters. The only risk i can think of is possibly the currency exchange risk in Indian Rupees. In my much earlier blog, i also mentioned that my two children were also owning this REIT before their age of 11. They still own it until today. So when is your turn?