The land of Merlion is an island with just 50km from east to west. However, it has delivered an amazing result in their REIT market. What is the secret formula behind this?
As of today, the Singapore REIT market has grown rapidly into the 6th largest market globally by market capitalization. Right after Japan and Australia, it is the 3rd largest REIT market in Asia where it has the size that is twice of Hong Kong REIT market which ranked 4th.
Unlike other REIT markets that mainly focus in domestic, Singapore REITs hold properties from all over the world. Most importantly, they are typically well established and supported by a strong sponsor.
Majority of Singapore REITs are state own and this makes them attractive. Imagine that your property is backed up by the government, what are you worrying when the most crucial risk has been covered?
Although there are more advantage on why Singapore REITs is way much attractive than other market, it does not mean that any type of REIT is suitable for all investors.
To choose a REIT, it is not just about real estate. You need to know what is the business operating behind the real estate as different type of REIT has different valuation approach.
REIT can be categorized into 6 types as listed below.
1. Healthcare
2. Industrial
3. Residential
4. Retail
5. Logistic
6. Data Centre
The most common valuation for REIT is distribution yield and property yield. However, they are not positively correlated. A simple illustration is shown as below:
Healthcare REIT has the highest distribution yield among all other types of REIT but in term of capital gain, it is the lowest. Same applies to retail REIT, it provides the highest capital gain but has lowest distribution yield.
In order to determine what type of REIT to invest, one shall always focus on your investment objective before making any investment decision as wrong decision in investment may results in the loss of capital.
Lastly, happy investing!
