Investing in various asset classes to realise your investment goals will help in wealth creation. Nevertheless, such investments ought to be complete and independent so that they provide a steady stream of income to help attain your goals. Wealth creation calls for good financial planning and asset management.
When it comes to investing, diversification is considered the most straightforward method for creating a healthy stock portfolio. It is all about investing in various asset classes and giving unconnected returns. Adding real estate to your portfolio through a REITs investment is simple and offers diversification and high REIT dividend payouts. A real estate investment trust, REIT is an organisation that owns, manages, or finances real estate.
With REITs listed on the Singapore Exchange (SGX), you have access to real estate investing opportunities. Investing in real estate through REITs is similar to investing in stocks, mutual funds, and exchange-traded funds (ETFs). They are traded in minimal lot sizes of one unit or hundred units, making real estate assets more accessible for investors to include in their investment portfolio.
How Do REITs Work?
A Real Estate Investment Trust (REIT) owns and controls several types of real estate, like retail stores, resorts, office buildings, hotels, warehouses, and self-storage facilities, which generate income. While some REITs own a variety of property types, most focus on just one kind of real estate.
A REIT’s primary source of income is often generated through leasing out the properties it owns and collecting rent. Some REITs choose to finance real estate deals rather than own real estate, earning revenue from the financing’s interest.
With real estate investments in your portfolio, you can have a regular income because REITs are required to pay at least 90 percent of their taxable revenue as dividends to investors or shareholders.
Income investors choose to invest in these types of properties owing to the strong potential for capital growth and cash flow visibility offered by well-managed REITs with premium properties, extended lease periods, and consistent occupancy ratios.
Moreover, there is a committed REIT manager who:
- Decides on the REIT’s strategic direction in order to maximise shareholder value.
- Provides suggestions for the acquisition, sale, or improvement of assets.
- Assigns a property manager to oversee the day-to-day management of the tenants, the optimal tenancy mix to maximise occupancy, and the daily maintenance of the properties.
REIT Types Available for Investment in Singapore
REITs are typically classified into:
1. Commercial REITs
Commercial REITs mainly focus on commercial real estate, like shopping centres, office buildings, parking lots, and hotels. The stocks of these commercial properties are traded on the Singapore Stock Exchange.
2. Residential REITs
A diverse range of residential properties, such as villas, single-family homes, apartment buildings, and dorms, are under the ownership and management of these real estate investment trusts.
3. Hospitality REITS
In addition to renting out accommodation facilities and other amenities in hotels temporarily, hospitality REITs – also referred to as hotel REITs – generate revenue by holding different kinds of events.
4. Industrial REITs
They mainly focus on industrial assets such as business parks, manufacturing plants, distribution centres, logistics centres, and warehouses by owning and running industrial rent spaces and facilities. Online retailers rely on industrial REITs to help them achieve their shipping and distribution deadlines.
5. Retail REITs
Retail properties in commercial zones, business districts, and prime areas, are primarily owned and managed by these retail RIETs. Those looking for a place to open grocery stores, department stores, supermarkets, boutiques, and shopping centres can rent the retail premises.
6. Healthcare REITs
They are known to own and manage several hospitals, nursing homes, doctor offices, assisted living properties, and other healthcare institutions, providing a wide range of healthcare services to patients. REITs play a vital role in the healthcare sector. The most typical kind of lease that healthcare REITs use to rent the space is the triple-net lease, which covers expenses like insurance, taxes, and property maintenance.
The prime reason for investing in REITs is access to real estate, whether it be commercial, residential, or retail, which they offer without any need to buy properties. Further, you can increase your income through high-yield REIT investments.
