By Calvin Yeo (guest contributor)
Property investing is getting tougher in Singapore. The cooling measures, especially the Total Debt Servicing Ratio, Additional Buyer Stamp Duties as well as the Seller Stamp Duties have made it much harder for Singaporeans to invest in physical properties.
REITs as an Alternative to Property Investments
So what should a property investor do? One thing you can consider is investing in Real Estate Investment Trusts (REITs). REITs are basically trusts which invest in properties. REITs are traded on stock exchanges and receive a special tax treatment. Typically, a REIT needs to pay out at least 90% of the net income to be eligible for tax treatment.
Here are some advantages of buying REITs instead of physical properties:
1. Easily Diversify Into Different Types of Properties and Regions
With REITs, you are not limited to the standard residential and commercial properties which most property investors are used to. You can even buy into hospitals (First REIT), office buildings (Keppel REIT), hotels (Fraser Hospitality Trust) as well as shopping centers (CapitaMall Trust). You can even buy REITs which own properties in different countries such as Indonesia (LippoMall) and even Europe with the upcoming Germany-based REIT.
2. Easy to Buy and Sell
Since REITs are actively traded on a stock exchange, they are pretty easy to buy and sell. As compared to properties which will take a much longer time to find the right buyer, agree on the price as well as go through the legal process which can take anywhere from 3 to 6 months. For REITs, you can just buy or sell at the market price and the transaction is done instantly.
3. Start Investing With Less Money
Property investments generally require a lot of money upfront, from the 20% downpayment in addition to the legal fees involved. With the TDSR and mortgage cap rules, more money will be required upfront especially if you already own your house. For REITs, you can start investing with as little as $800, since OUE Commercial REIT is only about $0.80 per share and the minimum is 1,000 shares per transaction.
4. REIT Management Takes Care of Tenants and Maintenance
If you are familiar with property investments, you will know that investment properties require a fair bit of work, normally working with agents, tenants and contractors. REITs have a management team which takes care of all this work, making them a relatively hassle free investment.
5. Collect Steady Stream of Dividends
While property investments generate rental, there are times when the tenant does not pay or worse still your property remains empty. REITs do not have this problem. Due to the diversified nature of their portfolio, vacancy rates are usually low and they have to give out dividends as per their dividend policy. REITs usually pay out dividends quarterly or semi-annually, making them an ideal way to generate income for retirement.
Calvin Yeo, CFA, CFP is the Managing Director of Doctor Wealth Pte Ltd, which is revolutionizing the financial advisory industry by building an online platform to provide high quality and comprehensive financial advice for free.