It has been a bumpy ride for Singapore REIT investors.
The stock market is unsure about the sector today.
Remember the surge in Singapore REIT prices late last year, fueled by US Federal Reserve rate cuts?
That optimism proved short-lived.
As the Fed pumped the brakes on further rate reductions, REITs quickly surrendered those gains.
What is behind this REIT rollercoaster?
Instead of focusing on the unit prices, my co-founder David Kuo argues that you should be focused on the right reasons to own REITs.
Why should you own REITs?
Ask David why he owns REITs, and he’ll likely counter: “Why not?”
Consider this: land is limited.
They aren’t making any more of it.
REITs unlock access to prime real estate, generating consistent rental income.
A portfolio of well-chosen REITs offers a double win: steady income and potential capital growth as property values climb.
Reason #1: Keeping the taxman at bay
There are not that many ways to make money without the taxman wanting his cut.
For example, when companies make a profit, they must pay corporate tax.
But REITs operate differently.
If they pay out 90% of their taxable income to you — the unitholder — they are not required to pay taxes on that income.
And the tax savings don’t stop there.
In Singapore, REIT unitholders don’t have to pay income tax on the distributions they receive.
It’s a double tax win: the REIT avoids corporate tax, and you avoid income tax on your dividends.
That’s a powerful advantage, making REITs a tax-efficient cornerstone for your portfolio.
Reason #2: Would you like to own a shopping mall?
Ever dreamt of owning a shopping mall, a sprawling industrial complex, or a cutting-edge data centre?
REITs give everyday investors access to high-value properties normally out of reach.
In Singapore, we are blessed with plenty of choices, from retail REITs such as CapitaLand Integrated Commercial Trust (SGX: C38U) with its malls and office towers, to Mapletree Industrial Trust (SGX: ME8U) with its data centres.
Even healthcare is on the table with REITs like Parkway Life REIT (SGX: C2PU), boasting a trio of Singapore hospitals, namely Mount Elizabeth, Gleneagles, and Parkway East, and a vast network of nursing homes in Japan.
REITs also offer geographical diversification, with holdings both within Singapore and internationally, allowing you to expand your reach outside our island.
Reason #3: Long-term growth, not short-term boosts
REITs sometimes get a reputation for being the “slow and steady” type – maybe even a little boring.
But let’s be clear: nothing is boring about a solid return.
A recent SGX report (4Q’24) shows Singapore REITs and property trusts currently offer an average distribution yield of 6.9% while trading at 25% below their average book value.
That’s despite the high-interest rate climate that has pressured REIT prices since 2022.
Get Smart: Common reasons, uncommon results
Keep investing simple.
Don’t overcomplicate it.
Too often, investors take straightforward ideas and twist themselves into a pretzel.
Let’s not forget that if unit prices fall, the distribution yield goes up, making the investment more attractive.
In other words, if you buy, you stand to get paid more in the future.
That’s not a bad deal, now — is it?
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Disclosure: Chin Hui Leong owns shares of CapitaLand Integrated Commercial Trust, Mapletree Industrial Trust, and Parkway Life REIT.
