SGX REITs vs Overseas REITS. What’s the difference? and which should you invest in?

How much do you know about REITs?

As we all know for a fact, when one decides to invest in Real Estate Investment Trusts, they are actually investing in a real estate company and all other properties that they have under their belt. In order for a company to qualify and have themselves listed as a REIT, all assets possessed by the company has to consists of at least 75% worth of real estate.

REITs are a good investment alternative to consider especially for those who have their eyes set in the real estate industry and want to own part of it, but do not have that much cash on hand to purchase buildings, offices, shopping malls, or hotels. With REITs, one is able to indirectly own properties that they can only dream of owning without the need to fork out exorbitant amounts at a go.

“HIGH RISKS, HIGH RETURNS; LOW RISKS, LOW RETURNS”

REITs are considered by many investors, a defensive way of investing. Being a “safer” alternative to invest in, naturally, the returns would be lower than other investments. Most REITs typically yield an average of 6% or higher if you have the foresight for it, but to some investors, this is not the kind of returns that they are looking at. Translating this into layman’s terms, even when the market is experiencing bad volatility, so long as your REIT portfolio consists of retail malls or offices, people are bound to still dine out, buy their groceries on a regular basis, and work. You will still get your dividend yield during payout day. For those who are seeking huge returns or dividend payouts, REITs may not be the option for you.

The difference between SG vs Overseas REITs

Every Investment in general entail its own risks, people can gain huge substantial returns overnight while some make their profits on a consistent basis and others, not even close to making any. Depending on the type of payout you are seeking for, choose your investments wisely. A general rule of thumb and a good practice that any investors should take is to do their due diligence, carry out their own groundwork and assess that particular organization before investing their money with them.

Source: Propertyinvestsg

Every country would have their own dominance over certain industries such as a China specific REIT in the industrial category has a higher yield as compared to Singapore specific industrial REIT. An Australia specific REIT in the logistic category has a lower yield as compared to the same industry’s REITs in Singapore. This may simply be the case where Singapore is known for its tight security and mature ecosystem, making it a safer option to turn to, the safer the country is, the lesser the risks, the lesser the yield.

As a REIT investor, if you have already invested money into a local Singapore REIT, naturally, you should know how are the properties performing. During the weekends or off days, you can drop by the various hotels, shopping malls, or even offices and take a short walk around. Making your way down physically to find out how the performance of the properties would be much easier as compared to an Overseas REIT. Singaporeans are not subjected to currency risks as you do not get to buy a bottle of coca cola for S$1.50 and there would be a different price the next day. The quality of the sponsorship is crucial as this would determine the interest rates if the REIT company needs to take out a loan. It further affirms the REIT with a better credit rating and its overall credibility. Branding of the sponsor is important as the it will affect the reputation of the REIT.

Source: Propertyinvestsg

In most scenarios, majority of the overseas REITs among most industries have a higher yield as compared to Singapore specific REITs. But this does not mean that Singaporeans can take this for granted and just dump their life savings into a single REIT.

Source: Propertyinvestsg

This is a list of REITs that has either purely Singapore properties or foreign properties. With the above table as a reference, Singapore has more dominance over the industrial industry as compared to the office and retail properties that the overseas REITs has under their portfolio.

If you have a keen eye for news or any credible source of information, this might further assist you in a better decision making when considering which REITs to invest.

Which REIT to invest in?

When it comes to which REIT to invest in, we can never emphasize how important it is to look up on the following:

• The company’s financial history

• The person managing the REIT (His/her history and background)

• Have this particular company’s properties made profit throughout the past years?

• Did the payout dividend increase year to year?

• Check if the company is subjected to political or geographical risks? (Overseas especially)

• Look out for properties with high occupancy rate

• What kind of tenants are occupying the space and a bit of their background (if possible)

• Consider the current industry’s scalability if it the property is in the retail space, or hotel and tourism, or logistics

• Is there any country specific property regulations to abide to or any hidden fees?

• Who are the Sponsors (if any) and their credibility? Qualify them

• Debt Costs and interest rates

Investors who are relatively new to REITs should have a go with the local REITs for a certain period before venturing into Overseas REITs as this is a different ball game. As you gain experience, each and everyone will have their own specific way of noticing certain details or patterns and investors are able to leverage on that and turn it into an advantage over the course of REIT investing.

Source: Google

Do not pour all your hard-earned life savings or majority of it into just a single REIT. Although REITs are seen as a safer way to invest, they are ultimately still subjected and prone to any other typical investment risks. It is best to diversify your investments into a couple of REITs to spread your risks and reduce the likelihood of you losing money.

With a little bit of luck and personal research using the following guidelines above, narrowing down your checklist of REITs should not be much of a problem as these are details that most veteran or experienced investors would take into consideration to qualify their REIT. After all, does it not feel assuring to know that your hard-earned money is in good hands?

(By Lionel Lau)

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