Are Singapore REITs Expensive

In June 2019, many analysts were saying that Singapore REITs were getting quite expensive. Prices continued to soar anyway.

Are Singapore REITs Expensive

If we use the Lion-Phillip S-REIT ETF as the proxy to Singapore REITs, because of fears over the economic impact caused by Covid-19, price has declined by around 10% over just the last week or so, is it now a good opportunity to buy into some good assets?

Also on real estate, it seems property sales is still strong in Singapore, judging by the strong sales of Wing Tai The M, where 70% of units were sold over the weekend launch. Many people are very attracted to the potential capital appreciation returns of property investment, and we know the use of leverage with relatively low home loan interest is compelling.

However, a study released recently reveals that the median annualised capital gains has sunk to 2.2% last year, and this is below CPF return of 2.5%. Perhaps, a series of property cooling measures has an impact.

If investing in real estate is your cup of tea, do you know that there is an alternative way through investing in Real Estate Investment Trusts (REITs) listed on the Singapore stock exchange and you can buy and sell like any other stocks? Effectively, REITs manage a portfolio of properties and distributes the property income to unitholders (or shareholders) in the form of dividends.

In terms of asset types, you can also choose from Retail, Hospitality, Office, Healthcare and Industrial. In addition, you can be exposed to properties outside of Singapore as well.

The dividend that you can expect from Singapore REITs (S-REITs) ranges from around 4% to 9%. On top of this, you can expect some form of capital appreciation if you pick the right REITs.

How should you go about selecting and investing good REITs? Here are some pointers:

  • DPU (distribution per unit) is growing
  • NAVPU (net asset value per unit) is growing
  • NPI (net property income) is growing
  • Interest coverage ratio is greater than 5
  • Conservative gearing ratio
  • Good occupancy
  • Good management

As with any value investors, you also want to buy good REITs at a discount, so knowing how to carry out a proper valuation is critical.

Journeywithmoney has organized a 3-hour Masterclass and you can learn the following:

  • What is a REIT and Why You Should Invest in REITs
  • Structure of a REIT
  • Types of REITs
  • Understanding the Financials of REITs
  • Criteria of a Good REIT
  • Valuation of REITs

You can register for the Masterclass here. Seats are very limited, so please hurry.

At Journey With Money, we are practitioners of Value Investing for Singapore and US stocks. We are passionate about sharing our Stock Investment knowledge and experience but the materials we present do not constitute stock recommendations and readers are urged to do their own due diligence for any investment decisions.

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