Practical ways to invest in Reits
If you’ve only got a minute:
- Reits are a cost-effective way for retail investors to diversify their portfolio by including non-residential property holdings.
- Gains from investing in Reits can be captured through dividends and capital gains.
- You can invest in Reits by buying them directly through brokerages, purchasing unit trusts, through Reit exchange-traded funds or via robo-advisors.
Real Estate Investment Trusts (Reits) are seen by many as an essential component of a portfolio for income generation and dividend seeking. By investing in Reits, investors gain ownership of a wide range of properties both locally and globally at low entry costs.
Reits also make for interesting investment proposition as unlike traditional real estate investment, Reits trade like stocks. When you invest in Reits, you are basically putting your money into a collective pool of funds in a trust, which are then managed by a Reit manager, who then invests in a portfolio of income generating real estate assets, from shopping malls to offices to hotels.
Keen to invest but are unsure of how to go about purchasing Reits?
Here’s a practical guide you need to get you started with investing in Reits today.
How do you get returns from investing in Reits?
Before making a Reit purchase, it helps to understand the two ways you can gain from investing in Reits.
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 Bugis+ rent out shop spaces and commercial developments like Capital Tower rent out office spaces (both owned by CapitaLand Integrated Commercial Trust) to tenants. The rental income received is accounted as the taxable yearly income of the Reit.
In Singapore, Reits are legally obligated to distribute at least 90% of its taxable yearly income to unitholders through the form of regular distributions either semi-annually or quarterly.
Similar to stocks, you achieve returns from investing in Reits through capital gains. 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.
How investors can purchase Reits
As a retail investor, there are four ways main ways that you can buy into Reits:
- Directly investing in Reits like you would with equities
- Indirectly investing in them via unit trusts (UTs)
- Through Reit exchange-traded funds (ETFs)
- Gaining exposure to Reit ETFs through robo-advisors
This table summarises the differences.
1. Buying Reits with an online stock trading platform
Singapore Reits are listed on the Singapore exchange (SGX). 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.
If you think that investing directly in Reits is a suitable way for you to start your investing journey, all you need is a DBS Vickers account. With this brokerage account, you can start investing in Reits immediately.
Alternatively, investments can be made using Central Provident Fund (CPF) Ordinary Account and Special Account savings through a CPF Investment Account with an approved CPF Investment Scheme agent like DBS Bank.
What you can do:
If you don’t have a brokerage account yet, simply open one with DBS Vickers. For more information, check our Beginner’s guide to stock investing for Singaporeans.
If you already have one, simply login to digiBank to trade.
2. Buying Reit unit trusts
This option may be appropriate if you are just starting out with investing or 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. 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 tracking a separate Reit benchmark index.
S-Reits can also be invested through a Regular Savings Plans (RSP) like DBS Invest-Saver. Those keen on the DBS Invest-Saver RSP are able to purchase units in the Nikko AM-StraitsTrading Asia ex Japan Reit ETF for as little as S$100 each month.
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, 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
Robo-advisors are digital platforms that provide automated, algorithm-driven investment services with little human intervention.
You can think of it as an automated portfolio manager that helps you optimise investing strategies after asking you a few simple questions about your investment experience, risk appetite and investment preferences.
Investors can gain access to Reits through the Nikko AM-StraitsTrading Asia ex Japan Reit ETF through DBS digiPortfolio’s Asia Portfolio.
What you can do:
Login to digibank and click on Invest tab, followed by digiPortfolio. Once you have done that, select Asia Portfolio.
That said, do note that how much exposure you get to the Nikko AM-StraitsTrading Asia ex Japan Reit ETF depends on the risk level (e.g. Slow n’ Steady, Comfy Crusin’ or Fast n’ Furious) that you have selected.
This is the 3rd instalment in our series on S-Reits. If you’re keen to learn more about Reits, check out the other articles:
Part 1: The basics of Reits
Part 2: The S-Reit landscape
Ready to start?
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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.
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