Best Investment Brokerage Account for SG REITs 2023

What are REITs?

Real Estate Investment Trusts (REITs) are a type of unit trust, in which the underlying asset is property. REITs manage and rent out various properties, and income from the rental is paid to its shareholders as dividends. A REIT purchases its properties from developers, through equity raised by shareholders. REITs do not pay for this property in full; they borrow money to purchase it.

Dividend yield

REITs dividend payouts can occur every six months, or quarterly. Payouts are calculated via Distribution per Unit (DPU) and yield. DPUs measure how much an investor gets for every share she has in the REIT. If the DPU is $0.0361 per share, for example, you would get ($0.0361 x 1,000) = $36.10 per lot of 1,000 shares. You can check DPUs for various REITs on the SGX portal.

Liquidity

REITs are bought and sold like shares. Hence, there is no lock-in period for your REITs. REITs can be readily traded on the exchange it is listed on. Also, it is fairly accessible to an average investor as the cost of buying REITs is not extremely high. The given price of a REIT is the price per share (or per unit) in the REIT. These are sold in lots of 100. So if a REIT has a listed price of $1.32, that means the minimum purchase would be ($1.32 x 1,00 = $132).

Transparency

REITs are required to disclose financial information to investors and also make timely reports on business developments and risks. Also, for listed REITs, investors can monitor their performance such as the listed price, PE ratio, dividend yield, etc.

Diversification

REITs tend to specialize in specific types of property. For example, CapitaMall Trust is a retail REIT (they manage malls) whereas Ascendas REIT handles office and industrial properties. Hence, you can choose between different types of REITs. Also, REITs typically have low correlation with stocks and bonds so it can be incorporated for your portfolio diversification.

Returns

Historically, REITs have shown good performance in the long run. The total long-term returns provided by REITs is similar to those of stocks. Hence, it is said to have competitive long-term returns. The typical yield for REITs is between 5% to 9%, but this is not a guaranteed figure.

Calculating a REIT’s yield

There are different ways of calculating a REIT’s yield. The standard method is to take the latest DPU for one year, and divide it by the share price. For example, say my REIT’s latest DPU was $0.0361. I receive a payout every six months, so over one year, I would get an annualized DPU of ($0.0361 x 2) = $0.0722. I see that the latest share price is $1.02 per share. So my yield would be ($0.0722 / $1.02) = Approx. 7.07%.

Top 10 REITs to invest in Singapore

REIT	Listed price (as of 26 May 2020)	Dividend Yield
Ascendas REIT	$3.05	3.84%
Mapletree Commercial Trust	$1.95	1.91%
Mapletree Industrial Trust	$2.63	4.45%
CapitaLand Mall Trust	$1.89	1.84%
Keppel DC REIT	$2.45	3.18%
ParkwayLife REIT	$3.24	4.10%
Frasers Centrepoint Trust	$2.25	3.82%
First REIT	$0.82	9.24%
Ascott REIT	$0.865	9.78%
CapitaLand Commercial Trust	$1.63	5.48%

How to choose what REITs to buy?

Risk

The ratio of a REIT’s equity to its debt is called its gearing, and this is capped at 35% or 60% (depending on the REITs credit rating).Gearing is one factor in evaluating the risk of a REIT. The ratio of a REIT’s equity to its debt is called its gearing, and this is capped at 35% or 60% (depending on the REITs credit rating). You can also look at the yield and price to book value ratio of the REITs for further comparison and evaluation.

Management

REITs are run by appointed REIT managers. These people make guiding decisions for the REIT, such as which properties to add to a REIT, which assets to sell off, etc. Besides the REIT managers, REITs also employ property managers, who try to maximize rental yields. It’s the job of property managers to conduct asset enhancement initiatives, such as redesigning floors to hold more stores, finding the right mix of tenants, etc. As such, a REITs value and performance are dependent on the competence of its managers.

Type of property

REITs tend to specialize in specific types of property. For example, CapitaMall Trust is a retail REIT (they manage malls) whereas Ascendas REIT handles office and industrial properties*. Besides its management, a REIT is also gauged on the quality of its assets (owning a mall in town is probably worth more than owning a few scattered shop houses). Performance patterns based on specific types of REITs (hospitality, retail, office, and industrial).

Step 1

Open a brokerage account

A brokerage account enables you to purchase and sell publicly listed REITs. You have a wide range of brokerage options to select from. Some investors also have multiple brokerages but this is not necessary but based on your preference.

Step 2

Open a CDP account

If you want to purchase Singapore REITs, you are required to open another account besides a brokerage account. Before you can purchase equities listed on the SGX exchange, you would need a central depository (CDP) account. A CDP account allows you to safekeep the Singapore REITs you have purchased.

Step 3

Choose your REITs

With over 30 REITs listed on SGX to choose from, do research on the different REITs such as their yield, debt to equity ratio and price to book value ratio before making a purchase. You can also invest in REITs from other countries or alternatively, you can purchase a Unit trust or ETF that invests in REITs.

Using CPF to invest

You don’t always have to use cash for these investments. If you are 18 or above, and not an undischarged bankrupt, you might be able to use the CPF Investment Scheme (CPFIS) instead.

What do you need?

Above $20,000 in your Ordinary Account (OA) for CPFIS-OA investments Above $40,000 in your Special Account (SA) for CPFIS-SA investments Before investing your CPF money, note that you earn an extra 1% interest on the first $60,000 in your combined CPF accounts. The amount you can invest is a percentage of your investible savings. This is the sum of your OA balance,including any CPF funds you have withdrawn for investment and education.

What can you invest?

Up to 35% of investible savings can be put in: Shares, REITs and Corporate Bonds. Up to 10% of investible savings can be put into gold Exchange Traded Funds (ETFs), or other gold products. There are also restrictions on which specific products you can invest in. These are mainly based on the risk level of the products. For more details, check with your broker (the list is updated regularly).

What happens to the returns?

Returns from your investment will go into your CPFIS account. From there they can either be invested again, or placed in your CPF. Assuming you meet the minimum sum and Medisave requirements, you can request to withdraw the money you make (and any investments) under CPFIS at the age of 55.

Costs and Risks for CPF investments

There are standard fees to be paid for CPF investments. These are mostly the same fees you pay when investing with cash. On the upside, you do not have to top up your CPF if the investments fall in value. So if you buy shares with your CPF, and those shares plummet, you are not required to replace the difference. However, investments made under CPFIS are in no way safer or guaranteed. Losses incurred by your CPF investments will not be replaced for you.

How Do I Start Investing My CPF Money?

If you are using your OA funds, you will need to open a CPF investment account with one of the three agent banks: DBS / POSB, OCBC or UOB. You don’t need a CPF investment account if you are using your SA funds. To purchase or sell products under CPFIS, approach your broker or the organizations offering the products.

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