Singaporeans have a love affair with properties.
You just have to look at the large crowds at newly-launched condominiums.
It’s not hard to understand why.
Property is a tangible asset that can hold its value during downturns. Meanwhile, you can rent it out for passive rental income.
There’s a downside, though.
For most of us, investing in property requires you to take on debt due to the high capital amount needed.
It gets worse.
In a rising interest rate environment, you may have to cough up higher sums to service your mortgage.
That’s not all.
Owning physical property is also a concentrated bet.
If anything goes awry with your property, you may lose your rental income or be forced to cough out more dollars to repair it.
Finally, rental income earned from leasing out your property is also taxable, further reducing the yield you obtain from your investment property.
Let’s not forget that there are also property taxes to pay as well as lawyer and transaction fees relating to the purchase of a property.
There is a convenient alternative, though, and that is to park your money in a basket of dividend-paying property stocks such as property developers and REITs.
Diversifying your risks
By doing so, you can diversify your risks as you will gain exposure to different property sub-classes and regions.
For instance, Parkway Life REIT (SGX: C2PU) and First REIT (SGX: AW9U) offers exposure to healthcare properties such as hospitals and nursing homes.
Mapletree Industrial Trust (SGX: ME8U), on the other hand, gives you the chance to invest in data centres and industrial properties.
The exposure to different property types mitigates the risk of owning a single property sub-class such as residential property that may be subject to government cooling measures or adverse regulations.
Parkway Life REIT offers exposure to Singapore and Japan while owning a piece of Link REIT (HKSE: 0823) gives you a slice of Hong Kong retail assets.
This flexibility allows you to diversify your portfolio to gain exposure to different growth opportunities and mitigates the risk of exposure to any single region or asset type.
Enjoying a healthy stream of passive income
The beauty of owning dividend-paying stocks is that you get to enjoy a healthy and growing stream of passive income that flows directly into your bank account.
REITs such as Mapletree Logistics Trust (SGX: M44U) pay a quarterly distribution and currently provide a historical distribution yield of 5.5%.
CapitaLand Ascendas REIT (SGX: A17U) is one of the oldest industrial REITs and paid out a distribution per unit of S$0.15798 for 2022.
At this level, units offer an attractive distribution yield of 5.8%.
Property developers such as City Developments Limited (SGX: C09) also dish out dividends.
The former paid a total cash dividend of S$0.28 for 2022 while the latter maintained its US$0.22 annual dividend despite reporting a lower year-on-year underlying net profit.
Backed by physical assets
When you put money into property stocks, their value is backed by physical assets.
REITs have a portfolio of properties while property giants have a land bank and a portfolio of investment properties.
These physical assets, in the hands of a good management team, mean that you can enjoy a good night’s sleep without worrying whether the stock will go to zero during a crisis.
Compounding at its finest
With a portfolio of property stocks paying out regular dividends, you are now well-positioned to benefit from the magic of compounding.
You don’t need a big sum of money to get started.
You can easily begin with a four-digit sum and then slowly increase your investment as time goes by.
With the dividends you receive, you can then reinvest them in the same REITs and property companies and increase your stakes in them.
Over time, as you grow your portfolio’s value, this stream of passive income will also increase in tandem, putting you in a better position to enjoy your eventual retirement.
Of course, patience is required as compounding takes time.
But if done right, you should expect to see your investment portfolio of property-related stocks steadily increase in value over the years and decades.
Get Smart: Do not wait too long to start building your wealth
Don’t wait too long to start building your nest egg.
Time is of the essence and the younger you begin your investment journey, the more chances you have to compound.
Property stocks and REITs can give you the best of both worlds as they offer growth and dole out dependable dividends.
Not sure which REIT to put your money in? Use our 7-step REIT checklist to find one that fits into your retirement plan. Checklist is inside our latest FREE report “Singapore REITs Retirement Plan”. Click here to download it now.
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Disclosure: Royston Yang owns shares of Mapletree Industrial Trust.
