Back then… If I had REIT’s, I could afford to sleep …in peace. (S!P)
REIT’s aka Real Estate Investment Trusts are the most coveted assets Singapore investors have been attracted to owing to their high yields ( as much as 6.5 % per annum) outsmarting and outperforming their other cousins viz FD’s, shares and bonds.
Now, these days, I have invested in REIT’s, and please do not preach, coz I am losing sleep.
May they rest in peace(RIP)
Let us take a look at current S REIT report card.
In the year-to-date, the SGX S-REIT Index, comprising all REITs listed in Singapore, has declined close to 6.3% on average. This is offset by its 6.5% per annum yield that the REITs pay out on average.
A similar decline was witnessed in all three REIT ETFs listed in Singapore – the Lion-Phillip S-REIT ETF (declining 6.8% in year-to-date 2018); Nikko AM-Straits Trading Asia Ex Japan REIT ETF (declining 6.3% in year-to-date 2018); and the Phillip SGX APAC Dividend Leaders REIT ETF (declining 5.5% in year-to-date 2018).
Does it mean that experienced investors should ditch them for more enticing options? Does it head towards the epitaph of Singapore REIT’s? As an experienced investor, should you look beyond S REIT’s? Is there a wayout or wayup?
Will the market buck the trend? Would they rise like a Phoenix?
Many investors are thinking of going the global route. Before you decide to join the bandwagon, think it over. We live in volatile times, times of political instability, Governments get married and then divorced in no time. Taxation rules vary. Will you be able to keep a tab?
So, what should you do?
There is an epigrammatic response to that. Cliched as it may sound,
Ignore the report card. S REIT’s are here to stay.
# REIT’s – Invest and rest.
While it pertains to life in general and investment in particular, while investing, always ditch instant gratification for delayed gratification. Do not let their short term performance break your heart. REIT’s are for the future. Especially for REIT’s ,passive investing with an eye on the bullish market for long term is the key. The real estate may be the tortoise in the game these days, but the future is quite starry. The economy is on the path to growth with a demand for more office spaces, hiked rents and higher occupancy rates. When it gains momentum, you as an experienced investor may want to ride on the strong operating fundamentals. Under Singapore REIT market, REIT’s have to give back 90% of their taxable income to shareholders as annual dividends, you would ride the crest at that point in time.
Now, if you think that economies grow at different rates and there is an advantage in investing in an international REIT, let me tell you, when the economy grows as a whole, we cannot decouple ourselves.
# REIT’s – Look backward and step forward
When it comes to REIT’s, use your hindsight and foresight both. Look at historical data. Compare the dividend yields with returns from other fixed income securities like corporate bonds etc. REIT’s have always performed well during similar economic conditions, better than their counterparts. Singapore-REITs have provided an annualised total return of 8.4 per cent over the past five years, nearly double the 4.4 per cent return of the benchmark Straits Times Index (STI).
# Cherry pick the best performing REIT’s
The overall REIT equity returns might not be something to boast about, a closer look shows that some of them have outperformed the others.
Healthcare is one. Retail is another.
Cherry pick these.
According to Lee Brenan, principal,Cuningham Group ” A silver tsunami” is coming. The growing numbers of aging seniors is going to change the face of housing and health care. The ripple effect is going to be on Singapore too. The statistic shows a projection of the aging population in Singapore from 2015 to 2035. In 2035, the percentage of the population of Singapore above the age of 65 is forecasted to be at 31.74 percent. And this population would not like to grow old just looking at other people. They would like to live in the same houses they live in and also expect care outside of a hospital setting. This calls for a boom in real estate at a very different level. A confluence of ambulatory services on a retail strip. This would also accelerate the demand for senior living, assisted living and communities that encompass movie theatre, residential complex and wellness and prevention centres.
If you are an avid investor, you can ride this Tsunami wave and cherry pick your REIT’s.
A pinch of salt though.
Do not put all your eggs in one basket. Add an international REIT to diversify your portfolio.
# Diversify by going global.
Real estate is a comparatively local business. While it may be in doldrums in one country, it may be galloping in the other. Also, it can hedge against inflation. Real estate would always build value over time in spite of secular currency depreciation. Observe and understand the dynamics.
Minimise the risk by shopping across the globe. Since global REIT’s not only have a low correlation with the rest of your portfolio but also with your current real estate ownership, they are the best bet in case you wish to diversify your portfolio.Owing to their ease of use and global acceptance, they are a compelling opportunity for you to get more return for every unit of risk you take. When you are riding red on some REIT’s, there would always be some green color on your portfolio making you sleep in peace.
Learning Curve:
The ‘will they won’t they’ wave that the Singapore REIT’s seem to ride on these days would end in favour of ‘they will’.
The moot point is, like all other investments, you have to manage them well.
