New investors in Singapore tend to hear about Real Estate Investment Trusts, or REITs, when starting their investing journey.
REITs offer an accessible way to invest in the property sector, and every rookie investor would have heard claims of “high yields” from their friends and family.
But what exactly are REITs, and why are they so popular with new investors?
Follow as The Smart Investor breaks it down for you.
What Is a REIT (In Simple Terms)?
A REIT company owns, operates, or finances income-producing real estate, such as shopping malls, offices, warehouses and even hospitals.
When you buy a REIT, you do not own the physical property itself.
Instead, you have an indirect ownership stake in a portfolio of real estate assets.
For example, when you buy units of Parkway Life REIT (SGX: C2PU), you are investing in Parkway Life REIT’s portfolio of 75 properties across Singapore, Japan, France and Malaysia.
These properties collect rent from tenants, and that rental income gets distributed to investors.
As a unitholder, you receive a share of the profits when the REIT distributes them to investors.
Why REITs Are Popular With New Investors
In Singapore, REITs have stringent regulatory requirements, including distributing at least 90% of taxable income to unitholders.
That means, unlike stocks, where a company can decide if it wants to pay dividends, REIT distributions are built into the structure.
Distributions are typically paid out every quarter or half-yearly, which is a huge draw for income investors.
In addition, REIT distributions are tax-free as a Singapore investor.
Compared to buying a property, the barrier to entry is also lower for REITs.
For instance, buying one lot (100 units) of CapitaLand Integrated Commercial Trust (SGX: C38U) at S$2.38 per unit will cost you S$238.
Buying a property can set you back a few hundred thousand plus monthly mortgage payments, taxes and property-related fees.
The lower cost of REITs allow new investors to start with a lower capital.
For many, REITs are also not as complicated.
In simple terms, rent from properties is collected, expenses are paid, and at least 90% of the remaining cash is shared among the unitholders.
Investing in something familiar is also a draw for many new investors.
Those who frequent suburban malls such as NEX, Causeway Point, and Tiong Bahru Plaza might be more inclined to invest in Frasers Centrepoint Trust (SGX: J69U) as they own and operate many of these shopping centres.
Hence, REITs feel more predictable and can appear less intimidating for beginners, making them more popular with new investors.
Dividends Make Investing Feel Rewarding
Receiving regular cash payouts help new investors stay invested during market movements.
Even when prices move sideways, you can still count on income arriving into your bank account, making REITs emotionally easier to hold compared to growth stocks.
Investors can then take these payouts to purchase more units, strengthening their investment without additional capital.
Dividends help build confidence and patience, and allow the power of compounding to work in your favour.
What New Investors Should Watch Out For
High yields may look attractive, but they are not always a good sign.
Yields that are significantly above sector averages may indicate unsustainable payouts or asset quality issues.
A better approach is to look at distribution growth over time.
In addition, REITs are capital-intensive, and they rely heavily on borrowing to acquire, develop, and manage properties.
When interest rates increase, financing costs increase, which can affect the distribution per unit (DPU) paid to investors.
Furthermore, not all properties are equal.
Some properties perform better than others depending on the economy.
During COVID-19, REITs that mainly focused on retail or hospitality suffered a hit, while healthcare REITs remained resilient.
Similar to stocks, REIT prices go up and down as they are traded on the stock market.
Even though they feel more stable and safe, they are not risk-free.
Simple Questions to Ask Before Buying Your First REIT
Before purchasing your first REIT, it is important to ask yourself some questions:
- What kind of properties does the REIT own, and what drives its performance?
REIT performance varies by sector.
For example, retail REITs depend on consumer spending and foot traffic, while office REITs rely on employment rates, lease durations, and the demand for prime office space.
- Are the buildings mostly occupied?
Look for stable occupancy over multiple quarters, not just peak numbers.
For most sectors, an occupancy rate above 90% is a healthy target.
Additionally, a longer Weighted Average Lease Expiry (WALE) provides better income predictability and protection against market volatility.
- Has the REIT paid distributions consistently in the past?
A history of steady or growing distributions is often a sign of prudent management and a resilient portfolio.
While past performance doesn’t guarantee future results, it demonstrates a commitment to shareholder returns.
- Is the REIT borrowing too much money?
In Singapore, REITs have a regulatory gearing limit of 50%.
Most maintain an average of just under 40%, indicating conservative leverage.
Check the Interest Coverage Ratio (ICR), which measures how easily a REIT can pay its interest on its debt from its operating income; a higher ratio means a larger safety buffer.
- Do I understand how the REIT makes its income?
Are you comfortable with the specific risks of a REIT’s industry?
If the business model feels overly complex, it may be worth looking for a simpler alternative.
What This Means for New Investors
REITs can be a good starting point for new investors to learn the fundamentals of the market.
It is important to keep your expectations realistic and know what you are buying.
REITs should be part of a broader, diversified portfolio.
Incorporating them into your strategy can help lower overall portfolio volatility and provide a steady stream of passive income.
Get Smart: Income Is Attractive, Understanding Is Essential
REITs are popular for good reasons: steady income through distributions, low barrier-to-entry, simple structure, and familiar assets.
But don’t simply chase yield.
Experienced investors take time to understand how REITs work and how to best incorporate them into their portfolios.
The SGX is strengthening, liquidity is rising, and MAS’s market revival plans are creating a more supportive backdrop for yield-focused assets. If you want to understand which REITs could benefit most from this renewed momentum, join us for our free webinar, The Big Singapore Stock Market Rebound (2026’s Dividend Opportunity). Secure your free seat here.
How do rich Singaporeans invest when volatility hits?
They turn to companies with cash, history, and discipline. This free report highlights 5 blue chips that deserve your attention. Get your copy here and see who made the list.
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Disclosure: Wenting does not own any of the above-mentioned stocks.
