Do the Reit thing

Instead of owning floor space, go for property stocks that may give you investment returns

 R Sivanithy

Buying physical property requires large capital outlay, so most people can usually afford only one investment property, or at most two. As an alternative to actually directly owning property, investors could always consider real estate investment trusts (Reits).

Reits are unit trusts set up to acquire, own and manage properties, and to receive rental income from tenants for distribution to their unitholders. There are many types, including those holding assets in sectors such as office, retail, industrial, hospitality and healthcare. Investors buy and sell units just like stocks and the units are kept in their Central Depository (CDP) accounts.

However, if investors are looking to the stock market to gain exposure specifically to the private residential property market, then they might be better off looking at the shares of well-known developers like City Developments, CapitaLand, UOL, Wing Tai and Bukit Sembawang.

This is because there is only one Reit classified as being exposed to the residential sector — Ascott Residence Trust. However, this is more a hospitality Reit because it owns mainly serviced residences.

INVESTORS CAN EXPECT SEVERAL ADVANTAGES

Reit portfolios include many assets — this means the risk of being exposed to just one asset or market is reduced through diversification.

Second, as long as a Reit distributes at least 90 per cent of its taxable income, distribution is tax-free. What’s more, units are traded on the Singapore Exchange, so
investors can cash out any time.

Yields tend to be at least 5 to 6 per cent, which is quite attractive compared to the current low bank deposit rates of 1 to 1.5 per cent.

ON THE OTHER HAND:

Reits could be vulnerable if interest rates rise quickly because then bank deposits, which are considered safer, would look more attractive.

Also, income is less regular — usually quarterly or half yearly, versus a monthly rental from an investment property — and you have no direct control over assets added or removed from the portfolios.

DUE DILIGENCE

Investing in property developer stocks requires homework; you have to look at valuations (price-earnings, price-book and dividend yields are the usual suspects) and consider whether the time is right to make your entry.

As long as you have a CDP account and a trading account with a stockbroking firm, your investment journey can start when you place your orders either online or through your dealer. Good luck!