Sometime after the global financial crisis of 2008, REITs within Singapore have flourished because of the excellent yield returns and safety of the investments. These days, the REIT market within Singapore is considered to be quite stable both in terms of growth and performance.
Here are a couple of reasons why you might want to invest in a Singapore REIT.
By investing in an REIT, an investor can actually become part-owner of a property without having to worry about such issues as maintenance, repair, rent collection and so on. For small-time investors with limited resources, it is almost impossible to invest directly into real estate unless they are prepared to incur a lot of debt from a bank. Considering the difficulty at which a borrower can get a mortgage loan from the banks, it is quite difficult for the regular investor to start investing in the real estate market. Therefore, by allowing a variety of investors to pool in their money and purchase certain assets, a REIT is a great option for both small and large investors.
Within Singapore, most REITs are known for providing yield in the form of dividends regularly, either every month, every quarter, or by a schedule decided by the REIT. This is popularly considered a great source of income when compared to other equity-based financial products. Moreover, the annual yields of a REIT range between 5 to 9 percent which is considerable as compared to other financial products.
As is the case with most financial products, it is pertinent to analyze every REIT carefully before deciding to invest.
Let’s take a look at just a couple of the many REITs in Singapore, and analyze them in terms of their gearing ratios as of the point of writing this article. Gearing ratio just refers to the ratio that compares the amount of debt with the actual quantity of assets owned by the REIT owner. This information can be obtained from the latest financial reports published by the REIT. Typically, besides just the gearing ratio, you’ll need to go through much more detailed analysis, in order to gauge whether a REIT is fit for investment or not.
Suntec has a gearing ratio of 33 percent while it has a yield of 6 percent. This is not bad when compared with the average yield of REITs. The DPU or Distributable income per unit, however, has been decreasing, which is not a good indicator.
With a gearing ratio of about 37 percent, CapitalMall Trust also has a yield of about 5% which is right on the edge of the average yield range for REITs in Singapore. However, CapitalMall Trust has a stable DPU and is also considered to be within the Retail and Commercial REIT category which means that its assets are less susceptible to economic changes.
To determine whether a REIT is a good investment, we will need to consider other factors, such as its management, its stock price compared to its book price, and several other factors.