How do I invest in Singapore real estate?

Unfortunately, many beginning investors hearing the words “real estate” and “Singapore” thinking about a pile of money required to invest in such a distant country. If you want to invest in Singapore property market capital may not be a constrain. Today, investors can own real estate through an investment vehicle called Real Estate Investment Trust (REIT).

What are S-REITs?

Singapore REITs (S-REITs) are listed companies on Singapore Exchange (SGX) that rise capital from investors to operate and finance income-producing real estate properties. REITs are required to distribute at least 90% of its taxable specified income to the unite holders. For this reason investors will receive dividends from the REITs regularly and potential benefit from the capital gain. Today, more than 35 countries have REITs, including all G7 countries.

Global property market valuation and the current situation of the real estate market in Southern Asia

After 9 years of bull market on the global financial markets we are currently experiencing so-called “everything bubble”. The term refers mostly to develop countries. Robert J. Shiller, Yale University economics professor and Nobel Laureate for his work on bubbles when asked in the interview what forms bubbles like one we could see on the stock or property market answered: “the reason of the bubbles are… bubbles.” This is neither population nor interest rates. Only an “irrational exuberance” of a crowd drives prices to its insane levels.

The Shiller-Case Index presents home prices on the US market. We can observe that the home prices are very high now. The global houses are almost back to its level before the financial crisis. Prices were on the current level only twice during the 128 years traced history.

US Home Prices 1890-Present

Real house prices increased over the past year in most countries. One of the few countries from developed markets where we could see a relief in prices is… Singapore.

Singapore Residential Property Price Index indicates that there was a negative tendency concerning property prices in Singapore in the recent years.

It is important to bear in mind that the above analysis is based on housing market but in REITs case, we are dealing with commercial, income-producing properties.

Singapore estate market looks very appealing in comparison to other countries. However, the situation changes when we take into account an objective valuation indicator like dividends. S-REITs offer extremely attractive yields of anywhere from 4 to 7 percent in what, despite the recent uptick in global interest rates, is still a very tough yield environment for investors. Current paying dividend is closer to its lower limit of range what suggest that prices can still have some place for a correction. A similar relationship can be observed on a stock market when companies paying out lower dividend when the prices are high, and when prices are low companies paying a higher dividend in order to compensate investors a low returns.

Examples of properties owned by S-REITs

VivoCity

VivoCity is the largest shopping mall in Singapore owned by Mapletree Com Tr.

Rafles City Mall

Jointly owned by CapitaLand Commercial Trust (60% interest) and CapitaLand Mall Trust (40% interest), Raffles City Singapore is a complex comprising retail, commercial, hotels and convention centre space in the Singapore’s Central Business District.

Suntec City

Suntec City is a major multi-use development located in Marina Centre, a subzone of the Downtown Core in Singapore. Suntec City Office Towers hosts the offices of many embassies including Embassy of Spain, Qatar, Rwanda and Chile.

How to invest in S-REITs?

The Lion-Phillip S-REIT ETF (SGX ticker: CLR) is Singapore’s first exchange-traded fund that lets investors invest in high-quality S-REITs. Investing in a basket of REITs through ETF gives the exposure to 26 high-quality S-REITs in a fund.

During the February’s market panic prices slightly decreased giving the opportunity to purchase the The Lion-Phillip S-REIT ETF.

In the recently released Singapore budget for 2018, it was announced that tax transparency treatment for S-REITs will soon be extended to ETFs invested in REITs. That means distributions from S-REITs to ETFs will no longer be subjected to a 17 percent withholding tax for local and foreign individuals. The new tax incentives will come into force after July 1 2018. And it should be extremely positive for S-REIT ETFs like the Lion-Phillip S-REIT ETF.

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