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Humanising Finance
January 2017
     

Passive Income Through Reits Investment

Have you thought of investing in a piece of premium real estate like a hotel, hospital or factory and collecting rent year after year? In the past, only the rich could afford to do so by buying these expensive but lucrative assets. But retail investors now have the opportunity to invest in property via Real Estate Investment Trusts (REITs), which can be bought and sold on exchanges like any other stock.
 
 
What are REITs?
A REIT is a trust that owns and operates income generating real estate. Investing in one REIT gives you exposure to not just one, but a portfolio of properties - some of these may even include international properties. The rental income that is earned by the REIT contributes to the dividends that is passed on to investors.

According to a Bloomberg report in October 2016, the 7% yield offered by Singapore REITS (S-REITs) exceeded those listed in Australia, the US and Japan. One reason why S-REITs pay considerably higher dividends is because they are required to distribute at least 90% of taxable income each year to enjoy tax exempt status by IRAS (subject to certain conditions), making them a popular instrument for passive income seekers.
 
 
What are the different kinds of S-REITs available?
There are different types of S-REITs to choose from, and they are affected by different factors. Here are some examples of S-REITs:
 
Do note that one of the key factors that affects many REITs is interest rates. A large number of REITs are highly leveraged, meaning that they fund their operations with loans. Having to refinance their loans at higher rates may eat into their bottom line, minimise their ability to invest in new properties and thereby stifle growth.

With interest rates projected to rise in Singapore on the back of the Federal Reserve's rate hike, this is something to bear in mind when investing in REITs.
 
 
How do I decide?
With so many types of REITs out there, it's hard to decide on a particular one to invest in. You can consider these two parameters when looking for undervalued REITs that offer good dividends - Price to Book ratio (PB) and Dividend Yield.

Try this: use a screener like KE Trade's Strategy Builder from Maybank Kim Eng to filter for REITs for example with a PB ratio of less than 1 and Dividend Yield of at least 3. You now have a pool of REITs to consider based on this criteria. You can also backtest this strategy using historical data, or try filtering for REITs using different criteria that meet your investment goals.

As with all other investment products, REITs do come with investment risk, so find out more and consider whether this form of investment is suitable for you. Maybank Kim Eng regularly holds investment seminars, including ones on REITs investment. Find out more and sign up here.
 
 
Not a Maybank Kim Eng client? Click here to open a FREE KE Trade account. It takes as little as 5 minutes! For more information, visit our website or contact us at helpdesk@maybank-ke.com.sg or 6432 1888.
 
Disclaimer: This message is for general knowledge or information only. It is not an offer or invitation to buy or sell securities, futures or other products or services. Our products or services vary in different jurisdictions, subject to their respective terms and conditions and the licences our affiliates and us hold. This message is not an advice or recommendation for any financial planning, investment, legal, tax or other purposes and, accordingly, no responsibility or liability is assumed by us or our affiliates, whether directly or indirectly, from any person taking or not taking action.
 
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