The Pros and Cons With Real Estate Investment Trusts: The Positives

There are over 30 real estate investment trusts in Singapore’s stock market and these REITs either focus on one real estate sector or are invested across a few. Some of the real estate sectors include healthcare, industrial, commercial, retail, and hospitality.

Just like every other kind of investment vehicle, there are pros and cons for investors when it comes to REITs. In this article, I will be taking a look at the benefits that REITs can bring for investors. For the negative side of things, you can check out here.

1. A source of high yields

REITs and stapled trusts (a stapled trust comprises a REIT and a business trust) are stipulated by the Monetary Authority of Singapore (MAS) to distribute at least 90% of their taxable income as dividends in order to enjoy tax transparency.

This requirement results in REITs being investment vehicles with high distribution yields. For example, the 32 REITs and six stapled trusts listed in Singapore have an average yield of 7.1% as of 11 January 2017.

2. Easy accesss to diversification in the property market

REITs can offer an easy way for investors to be diversified in the property market.

For example, REITs in Singapore tend to own multiple properties within a particular real estate sector. By investing in different types of REITs, investors can also be diversified across different real estate sectors.

Beyond these, there are also REITs that invest in multiple properties overseas – they can provide investors with exposure to foreign property markets.

3. The presence of professional managers to manage properties

Imagine buying a property on your own. You would have to do up the paperwork, find prospective tenants, and even repair things as and when they break down.

But with a REIT, you have a team of professionals handling all these aspects with multiple properties. In short, you get to own real estate without the hassle associated with real estate investing.

All you need to worry about is whether a REIT’s manager has been doing its job well and whether that performance can continue.

4. Liquidity

REITs are listed on the stock exchange, which means that you can buy and sell them when the market’s open with the click of a button or two. In addition, the 2015 lot size change from 1,000 units to 100 units helped make REITs more affordable for the individual investor.

Ultimately, it is easier to buy and sell units of a REIT than it is to buy and sell a physical property.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.