Don’t you sometimes dream of being a landlord, collecting steady paychecks of rental income every year and getting capital gains from your investments? In land scarce, property-crazy Singapore, real estate is one of the most appealing asset classes to investors young and old, rich and poor alike.
However, due to the large amount of capital needed to purchase a property outright, it is unlikely that young investors will have the ability to afford having an investment property (separate from the home live you live in) at this early point of our careers. But, fret not. These days there are many alternative ways to get exposure to the real estate market besides actually going out to buy a property - we have found several ways for you to do so, often with as little as $1000!
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#1 Listed REITs
A Real Estate Investment Trust, or REIT (pronounced reet ), is a unique type of asset listed on the stock exchange that allows investors to pool their money to invest in real estate assets. Some REITs simply buy properties and rent them to tenants, others develop properties from the ground up, and some don’t even own properties at all, choosing to focus on the mortgage and financial side of real estate.
In Singapore, REITs are a big business, making up of about 12% of the benchmark Straits Times Index that tracks the 30 largest companies on SGX. Even if you do not personally know any REITs by name, you would probably have seen their logos plastered on buildings around Singapore.
Major listed REITs such as Ascendas REIT (owner of several industrial properties across Singapore) and Mapletree Commercial Trust (the owners of shopping mall Vivocity that is right at the exit of Harbourfront MRT station) are a way for investors to collect a steady paycheck from the existing property assets of the REIT as dividend income. Based on historic performance (of certain REITs), you can receive a dividend of 3-6% annually and capital gains in the low single digit region for total annualized returns of 10+%.
You could buy a position from as low as $300 (100 shares of Ascendas REIT @ $3/share) through any broker.
#2 REIT ETFs
If the thought of investing in REITS appeals to you but you don’t know which specific REIT to pick or would like an even more diversified portfolio, you could consider passively managed solutions such as NikkoAM-Straits Trading Asia ex Japan REIT ETF (which is a basket of Asian REITs tracking FTSE EPRA/NAREIT Asia ex Japan Net TR REIT Index) or Vanguard Real Estate ETF (which is a basket of global REITs tracking MSCI REIT Index).
REIT ETFs typically get you a market-cap weighted total REIT exposure (instead of a single REIT position like Ascendas REIT) and allow you to get a diversified portfolio of REITs at a lower investment quantum . However, the trade-off from this diversification is an additional layer of fees at the ETF level (the expense ratio of the ETF) and dividend withholding tax (for dividends income from REITs listed outside of Singapore).
You could buy a REIT ETF from as low as $111 (100 shares of NikkoAM REIT ETF @ $1.11/share) through any broker.
#3 Property Mutual Funds
The actively managed version of the REIT ETF is property mutual funds. In a property mutual fund, there will be dedicated portfolio managers that select property and REIT stocks on your behalf, buying undervalued securities and selling overvalued securities in the hope of maximizing investment returns in the fund.
The fees for active management are higher than for passive investment products like REIT ETFs, but investors can benefit from portfolio management by investment professionals. Henderson Global Properties Fund and Fidelity Global Property Fund are examples of such actively managed mutual funds. To our knowledge, property mutual funds tend to underperform REIT ETFs, but in the post Covid-19 financial markets, active management could be what you need to get outperformance over a REIT ETF!
You can buy a position for units equivalent to an amount from as low as $100 (the minimum Regular Savings Plan subscription amount at Fundsupermart).
Image source: The Straits Times
#4 Listed Real Estate Developer Stock
Major property developers such as UOL Group and City Developments Ltd are some of the biggest companies in Singapore comprise of 8% of Singapore’s Straits Time Index, and would be a good way for investors seeking higher returns (as well as higher risks). Developers will bid for the rights to develop a land parcel from the government, and convert it into a new property asset (which can potentially be sold to REITs) when the outlook is good. Dividend income from developer stock is more volatile than that of REITs. Owning listed real estate developer stock can allow you to make returns of up 50% in good years like 2017, or lose 50% in bad years like 2008.
You can buy a position from as low as $700 (100 shares of UOL Group @ $7/share).
#5 Tokenized Direct Property Investments
A number of fintech startups have also come up in the last few years to help address the demand for property investment and better connect opportunities to investors. If you would like to be the equity owner of a single property and collect the rental income from it but do not have the capital to purchase the entire property, you may consider doing so via online platforms such as Shareable Assets, who tokenize the property into bite sizes for retail investors.
The fintech startup will curate and list properties on its platform, and create a special entity to buy the property (for example, buying 2-units of a leasehold student housing building in UK from a developer for GBP130k) and issue tokens (for example, 1300 tokens @ GBP100 / token). These tokens can be purchased by retail investors such as you and me, and we would then own a portion of the property.
Investment returns will differ depending on the project; Shareable Asset’s first project will get you 9% net returns from rental guaranteed by the developer for the first 3 years, and subsequently you will earn the rental yield from the property (which may fluctuate, but if in line with other student accommodation rental yields, may be about 6-7%). If you buy 1 token of this project, you would be a 1/1300( 0.0077%) owner of the property, and you would receive that pro-rata percentage of rental income and pay pro-rata maintenance fees for the property. You get capital gains upon selling the property too; assuming the value of the property grows at 1-2% (the UK inflation rate), you could have a 10% capital gain (on top of your rental income) after several years.
A word of caution is that you will most likely only get your principal and capital gains back when the property is sold, and this is decided by a majority vote of the token holders. If majority of the token holders do want to sell, you could be stuck with an illiquid asset (much like you would be if you were a 1% equity owner of a HDB flat, but the majority equity owner does not want to sell) !
You can buy a position on the platform from as low as $170 (GBP100).
#6 Property-Backed Financing
While this is not investing in property per se, it is safe to say that the risk you assume is the value of the property. Peer-to-Peer lending startups such as Funding Societies, facilitate investors to lend money to SMEs in exchange for interest. These SMEs borrow for their business operations, both on a secured or unsecured basis, and the interest rate charged to them reflects the risk of default and non-payment of principal.
Unsecured interest rates on loans to these companies would be similar to that of your credit card debt, because if you borrow from your credit card, it is an unsecured loan! Interest rates on unsecured loans could be as high as 20+% p.a. In the case of property-backed financing, existing assets such as Singapore properties are used as collateral, therefore it becomes a (safer for lenders) secured loan. You can liken this to a process whereby you take the role of a bank in a mortgage, lending to a borrower (the SME) an amount that is 70% of the value of the property. For secured loans, the interest rate is quite low (i.e. current mortgage rates are about 2-3% p.a. )
Secured lending like property-backed financing will enable investors to earn 4-8% p.a. (read more about it here). This is usually repaid at the end of the term of the loan, which could be about 1 year or less if the loan does not default.
You can buy a position on the platform from as low as $20.
Special Mention: Developer Financing and Land Banking
There are other property-related investment opportunities available to retail investors as well, such as developer financing and land banking. The minimum investment amount for either is much more than $1000, but not as much as the cost of a property downpayment.
In developer financing, a platform such as Minterest might offer investors an opportunity to lend money to a real estate developer to finish their construction project. Loans are typically on an unsecured basis over a short-term (6-12 months). Such investments are significantly riskier than the property-backed financing mentioned above, and investors might receive interest of 8-12% p.a. provided that the loan does not default.
Land banking, provided by asset management firms such as Walton, is another strategy where investors can purchase parcels of land in large land-rich countries such as US and Canada on the periphery of towns, as investors bet on the town expanding and acquiring these surrounding land to develop infrastructure for its residents. This is one of the highest risk property strategies, because while you could make several times of your money in investment return when you sell your plot of land that has greatly appreciated in value, you could also be left with an investment that is going nowhere if the land is undeveloped or land prices face an extended period of decline that may result in you never recovering your capital.
You can buy into such opportunities if you have upwards of several thousands to tens of thousands of dollars.
The above strategies mentioned are some ways known to us that retail investors can invest in property with as little a $1000, significantly less capital required than the several hundred thousands dollars required to purchase a property in Singapore. We at WhatCard are not investment advisors and encourage readers to do their own due diligence before making investment decisions.
Note: This article is not a sponsored post. All investments carry risks, and WhatCard does not endorse any of the following investments or investing platforms mentioned below. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment. All investments carry a risk of loss of capital. Foreign exchange transactions involve risks and fluctuations in foreign exchange rates may result in losses in foreign exchange. To the extent permitted by law, WhatCard accepts no liability whatsoever for any direct indirect or consequential losses or damages arising from or in connection with the use or reliance of this publication or its contents.Please consult a financial advisor prior to making investment decisions.
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