Real estate investment trusts (REITs) have skyrocketed in popularity since it first debuted on our local stock market some 16 years ago, and with good reasons too.
In this article, I have compiled 10 reasons why REITs are so popular now and why we should consider investing in them.
#1 Easy to understand
Investors don’t need a degree in real estate valuation to understand REITs. In fact, even the lay investor will be able to comprehend and analyse a REIT’s business, prospects, and valuation easily.
#2 Offers diversification
Not only do REITs offer exposure to real estate, but REITs also offer diversification across a wide range of real estate sub-types not traditionally accessible to the individual investor. Those sub-types include retail, industrial, hospitality, and office properties.
#3 Tax benefits
Unlike traditional property companies, REITs enjoy tax shields and benefits. Investors in Singapore are also not taxed on distributions, which make REITs an even more appealing option.
#4 Recurring income
REITs enjoy recurring rental income that is both stable and predictable.
#5 Capital appreciation
Besides distributions, REITs can also appreciate in value. This year alone, REITs have enjoyed double-digit capital appreciation amid the Fed’s more hawkish view on interest rates.
#6 Professional management
Unlike investing in your own property, REITs are professionally managed. By investing in REITs, you gain exposure to real estate but without the hassle of looking for tenants, managing maintenance, or worrying about property expenses.
#7 High yields
At current prices, REITs sport an average yield of around 6%. This is higher than fixed deposit rates, savings accounts interest, and even the Straits Times Index’s (SGX: ^STI) dividend yield.
#8 Stable distributions
To enjoy the tax benefits, REITs need to pay out at least 90% of their rental income to unitholders. As such, investors need not worry about changing dividend policies.
#9 Good hedge against inflation
Property prices tend to increase during periods of inflation. Therefore, REITs can be a substitute for fixed income instruments such as bonds in periods of high inflation.
#10 Great total returns
Last but not least, REITs have historically provided great total returns. As of 31 December 2018, the S-REIT index, which measures the returns of REITs in Singapore, boasted an average five-year total-return of 25.6%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.