3 practical ways you can invest in REITs

3 practical ways you can invest in REITs

Heard of REITs, thought about investing in one but don’t know how? Well, here’s the practical guide you need to get you started with investing in REITs today.

What are REITs?

Before we go into the practical ways, let’s start with the basics. What exactly are they?

REITs stand for “Real Estate Investment Trusts”, and are investment vehicles that lets you invest in real estate at an affordable price. When you invest in REITs, you are basically putting your money into a collective pool of funds with a team of professionals who are also commonly known as the REIT manager. The REIT manager then invests in a portfolio of income generating real estate assets, from shopping malls to offices to hotels.

What do you get in return from investing in REITs?

There are two ways you can gain from investing in REITs: Distribution yield or capital gains.

  • Distribution yield. The portfolio of income generating real estate assets in the REIT allows the investor to earn rental income from the real estate. For example, shopping malls like Vivocity (owned by Mapletree Commercial Trust) rents out its shop spaces to tenants. The rental income received is accounted as the taxable yearly income of the REIT. REITs are legally obligated by the Monetary Authority of Singapore (MAS) to distribute at least 90% of its taxable yearly income to unitholders.
  • Capital gains. Another type of return from investing in REITs is the capital gain. Just like any real estate, the properties within the REIT portfolio will also grow in value. Valuation growth can come from activities such as acquiring into new/undervalued assets, growing the value of existing assets through asset enhancement initiatives or unlocking of value through capital recycling. These activities will drive the value of the REIT, leading to capital gains for unitholders who have invested in the REIT.

3 practical ways to buy into REITs for investors

There are three ways that you can buy into REITs as an investor: By directly investing in REIT equities, or indirectly investing in them through unit trusts (UTs); or through REIT exchange traded funds (ETFs). This table summarises their differences.

1. Buying REITs with an online stock trading platform

REITs are listed on the Singapore exchange (SGX) just like any other equity. This means that you can invest directly in REITs on the SGX, just like how you would buy any other equity through trading platforms such as DBS Vickers Online.

If you think that investing directly in REITs is the right way to start your investing journey, all you need is a DBS Vickers account. With this brokerage account, you can start investing in REITs immediately.

What you can do:

 

2. Buying REIT unit trusts

Sometimes, you might prefer to delegate the task of investing to a third party to do it on your behalf. Unit trusts are one way you can let professionals handle your REIT investments for you.

Each unit trust comes with its own mandate of investing the funds within the trust. Based on the mandate, the unit trust invests your money in a portfolio of REITs. For example, Manulife GF APAC REIT P SGD is a unit trust that invests at least 70% of its net assets in Asia Pacific ex-Japan REITs for income and stability. On top of that, it also invests up to 30% of its net assets in real estate (but non-REIT) companies for diversification.

What you can do:

  • Head over to Fund Search, filter with “All Geographies/Themes” for any of the property themes (e.g. Property – Asia). Select from the filtered results to find out more about the fund. Once you have made your decision on which unit trust to invest in, click on the “Buy Now” button and login to your digiBanking account to start investing today.
  • If you’re already logged into digiBanking, you can access the same information and filters using the Invest tab.

 

3. Buying REIT ETFs

ETFs are funds that seek to track a benchmark index such as the Straits Times Index (STI) or the S&P 500. Just like the broad market indices, REITs also have their own benchmark index. There are currently three different REIT ETFs listed on the SGX with each of them tracking a separate REIT benchmark index.

What you can do:

There are two ways you can purchase REIT ETFs

  • If you prefer to buy them on the stock exchange, you can do so using an online brokerage. You will need to have an online brokerage account such as DBS Vickers Online.
  • If you prefer to buy them on a regular basis, you can do so through a Regular Savings Plan (RSP) such as DBS Invest-Saver. This option lets you regularly invest a fixed amount of money into a REIT ETF every month using a dollar cost averaging strategy.

ETF Benchmark Index Can you invest using DBS Invest-Saver? Can you invest using DBS Vickers?

Phillip SGX APAC Dividend Leaders REIT ETF

SGX APAC Ex-Japan Dividend Leaders REIT Index

NikkoAM-StraitsTrading Asia Ex Japan REIT ETF

FTSE EPRA Nareit Asia ex Japan Net Total Return REIT Index

Lion-Phillip S-REIT ETF

Morningstar® Singapore REIT Yield Focus Index

Want more about REITs? Check out the rest of the S-REITs series:

Part 1: Getting to know S-REITs

Part 2: Evaluating REITs

Part 3: 3 practical ways to invest in REITs

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