The Singapore property sector has enjoyed strong growth since the financial crisis.
A combination of low interest rates, a buoyant world economy and wide margins of safety in the aftermath of the financial crisis have produced impressive returns for many investors.
Looking ahead, there could be further growth on offer from this sector.
One way of accessing it is through buying real estate investment trusts (REITs).
They provide diversity as well as growth potential over the long term.
By focusing on diversity, value, and exposure to fast-growing sectors, you could improve your chances of getting rich and retiring early.
Diverse exposure
While REITs can offer long-term growth potential, the property industry has historically moved in cycles.
This means that, in the short run at least, there is always the potential for property prices to move lower and for investors to experience paper losses.
As such, it is prudent to own REITs that offer a degree of diversity.
This could, for example, mean that they hold a wide variety of assets in different locations.
For instance, Mapletree Logistics Trust (SGX: M44U) is an industrial REIT that owns 163 properties spanning eight countries as of 30 September 2021.
Or, it could mean that a REIT holds different types of assets, such as retail, leisure and residential, in order to reduce their reliance on a specific sector.
One example is OUE Commercial REIT (SGX: TS0U), which owns seven properties across the commercial and hospitality space in Singapore and Shanghai.
By buying REITs that offer greater diversity, an investor may also be able to access a wider pool of growth opportunities in what is a rapidly-changing world economy.
Growth focus
Investors may wish to allocate their capital to growth areas that can accelerate the growth of their investment portfolio.
One such sector is logistics facilities such as warehouses.
These are becoming more in-demand as online shopping enjoys a tailwind from increasing consumer demand.
As more people telecommute, they are also buying more from the comfort of their own home.
Another sector experiencing rapid growth is data centres.
A surge in online activity and a shift from physical to digital processes has led to a surge in demand for data centres.
Cloud computing, social media, and improved technologies such as 5G are also powering this trend.
Keppel DC REIT (SGX: AJBU), a data centre REIT that owns 19 data centres across eight countries, is well-positioned to take advantage of this tailwind.
Mapletree Industrial Trust (SGX: ME8U), an industrial REIT with 143 properties, now has slightly more than half of its portfolio’s S$8.5 billion assets under management in data centres.
Positioning a portfolio so that it is concentrated in faster-growing sectors, such as warehousing and data centres, could lead to higher returns in the long run.
Low valuations
Although global property prices have made gains in the last decade, a number of REITs continue to offer good value for money.
In some cases, they may trade below their net asset value, which could represent a low valuation that produces an impressive rate of capital growth over the long run.
Due to the cyclicality of the property industry, it may take time for undervalued REITs to narrow the gap between their market value and intrinsic value.
However, by holding on to these undervalued REITs over the long run, an investor may increase his chance of getting rich.
Get Smart: Start early and be consistent
The key to building wealth is to start investing as early as you can.
Even after you do so, it’s important to be consistent and continue to deploy capital into strong, well-managed REITs.
Over time, you will build not just a robust portfolio of stocks and REITs, but also enjoy an ever-increasing stream of passive income.
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Disclaimer: Royston Yang owns units of Mapletree Industrial Trust and Keppel DC REIT.
