When considering investing within the Singapore Real Estate Market, investors typically have the option of purchasing property developer stocks, or REITs. Both types of financial products have their own benefits and disadvantages. The ultimate choice regarding the type of financial product to opt for can only be realized after careful consideration of the requirements and resources of the investor.
REITs can be analyzed fairly simply because their financial model is based on rental income versus the costs associated with maintaining the property. However, valuating property developers depend upon a model that is quite intricate.
For property developers, the annual yield for shareholders will be dependent upon the number of projects that are completed and sold within a single year. The number of projects that a developer may be working on cannot be projected accurately. Moreover, as compared to REITs, property developers face increased risk in regards to the condition of the economy at any point in time. When the economy is doing well, projects can be created and sold quite easily, although the case is completely different when the market is in a slump. REITS, on the other hand, are able to more successfully diversify risk for the investor.
When analyzing the performance of a project developer company, investors have to consider factors such as the ease with which a developer is able to acquire credit from banks. The availability of credit in itself is dependent upon a number of factors one of which is the credit rating of the developer. Moreover, as with REITs, the interest rate on mortgage loans is also yet another factor that must be kept under consideration.