The REIT Appeal

December 7, 2021

Investing is a subject that I never tire of sharing about. Here I must confess: REITs have a very special place in my heart. There are so many reasons that make it an attractive asset class; as I have covered earlier before. Here’s a recap just in case you missed it:

Historically, they have delivered competitive returns based on steady dividends and long-term capital appreciation.
Their comparatively low correlation with other assets also makes them an excellent diversifier to help reduce overall risk.

I wouldn’t be alone in this school of thought. A recent comprehensive commentary has also lauded the stellar performance of Singapore REITs (also known as S-REITs), noting how they “have emerged as a resilient segment of the local stock exchange in the past two years.” This is despite the pandemic, a black-swan event that has caused shockwaves through global markets. Even though hospitality and retail REITs have no doubt taken the stronger hit, it is still heartening to see overall good performance in other sectors such as the Singapore commercial property market which continues to attract significant investor attention.

Why so? The commentator in the article is of this view:

“Few investment opportunities provide such stability for 4 to 7 per cent dividend yield per year. It’s little wonder such investment classes with a dividend income and the potential for capital gains appeal to investors with a neutral risk profile at Singapore’s median age of 42.”

Indeed, until S-REITs were launched in 2002, it was not feasible for individual investors to dive into the commercial property market due to the high prices.

Fast forward to today:

“All it takes is S$230 at last Wednesday’s prices for an individual investor to buy into CapitaLand Integrated Commercial Trust (“CICT”), Singapore’s largest REIT, and enjoy a portion of CICT’s rental income from shopping malls and offices.”

In my personal view, governments and central banks will continue to do their utmost to improve the unemployment rate (which is currently at 8.4%²; compared to the long-term target of 6%) and inflation rate (now at about 1%³; compared to targeted average of 2%). As we endeavour to overcome current challenges and return to pre-COVID conditions; as long as portfolios (of your own and your clients) are positioned towards that direction, there will be ample potential for healthy, stable gains.