Why REITs Are Popular Among New Investors — And What to Know First

The Smart Investor01-06

New investors in Singapore tend to hear about Real Estate Investment Trusts, or REITs, when starting their investing journey. REITs offer an accessible way to invest in the property sector, and ...

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Here’s why they’re so popular – and what beginners should understand before buying their first REIT.","collect":0,"end_time":0,"defaultTopTitle":"thesmartinvestor.com.sg","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK6137":"零售房地产信托","J69U.SI":"星狮地产信托","8C8U.SI":"Cent Accom REIT","BK4211":"区域性银行","BK6108":"医疗保健房地产投资信托","BPOP":"大众银行","BK6142":"多户式住宅房地产信托","BK6011":"零售业房地产投资信托","ISBC":"投资者银行","LU0106831901.USD":"贝莱德世界金融基金A2","LU1668664300.SGD":"Blackrock World Financials A2 SGD-H","ICR.AU":"InteliCare Holdings Ltd","BK6512":"房地产股","C2PU.SI":"百汇生命产业信托","BK6072":"多样化房地产投资信托v","CFA.SI":"NikkoAM-STC Asia REIT","LU1791807156.HKD":"BGF WORLD FINANCIALS \"A2\" (HKDHDG) ACC","BK6134":"医疗保健房地产信托","CFA":"VictoryShares US 500 Volatility Wtd 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ownership stake in a portfolio of real estate assets. \n\nFor example, when you buy units of Parkway Life REIT (SGX: C2PU), you are investing in Parkway Life REIT’s portfolio of 75 properties across Singapore, Japan, France and Malaysia.\n\nThese properties collect rent from tenants, and that rental income gets distributed to investors.\n\nAs a unitholder, you receive a share of the profits when the REIT distributes them to investors. \n\nWhy REITs Are Popular With New Investors\nIn Singapore, REITs have stringent regulatory requirements, including distributing at least 90% of taxable income to unitholders.\n\nThat means, unlike stocks, where a company can decide if it wants to pay dividends, REIT distributions are built into the structure. \n\nDistributions are typically paid out every quarter or half-yearly, which is a huge draw for income investors. \n\nIn addition, REIT distributions are tax-free as a Singapore investor.\n\nCompared to buying a property, the barrier to entry is also lower for REITs. \n\nFor instance, buying one lot (100 units) of CapitaLand Integrated Commercial Trust (SGX: C38U) at S$2.38 per unit will cost you S$238. \n\nBuying a property can set you back a few hundred thousand plus monthly mortgage payments, taxes and property-related fees.\n\nThe lower cost of REITs allow new investors to start with a lower capital.\n\nFor many, REITs are also not as complicated. \n\nIn simple terms, rent from properties is collected, expenses are paid, and at least 90% of the remaining cash is shared among the unitholders. \n\nInvesting in something familiar is also a draw for many new investors. \n\nThose who frequent suburban malls such as NEX, Causeway Point, and Tiong Bahru Plaza might be more inclined to invest in Frasers Centrepoint Trust (SGX: J69U) as they own and operate many of these shopping centres. \n\nHence, REITs feel more predictable and can appear less intimidating for beginners, making them more popular with new investors.\n\nDividends Make Investing Feel Rewarding\nReceiving regular cash payouts help new investors stay invested during market movements. \n\nEven when prices move sideways, you can still count on income arriving into your bank account, making REITs emotionally easier to hold compared to growth stocks. \n\nInvestors can then take these payouts to purchase more units, strengthening their investment without additional capital. \n\nDividends help build confidence and patience, and allow the power of compounding to work in your favour. \n\nWhat New Investors Should Watch Out For\nHigh yields may look attractive, but they are not always a good sign.\n\nYields that are significantly above sector averages may indicate unsustainable payouts or asset quality issues. \n\nA better approach is to look at distribution growth over time.\n\nIn addition, REITs are capital-intensive, and they rely heavily on borrowing to acquire, develop, and manage properties.\n\nWhen interest rates increase, financing costs increase, which can affect the distribution per unit (DPU) paid to investors. \n\n\nFurthermore, not all properties are equal.\n\nSome properties perform better than others depending on the economy.\n\nDuring COVID-19, REITs that mainly focused on retail or hospitality suffered a hit, while healthcare REITs remained resilient.  \n\nSimilar to stocks, REIT prices go up and down as they are traded on the stock market. \n\nEven though they feel more stable and safe, they are not risk-free.\n\nSimple Questions to Ask Before Buying Your First REIT\nBefore purchasing your first REIT, it is important to ask yourself some questions:\n\n\nWhat kind of properties does the REIT own, and what drives its performance?\n\nREIT performance varies by sector. \n\nFor example, retail REITs depend on consumer spending and foot traffic, while office REITs rely on employment rates, lease durations, and the demand for prime office space.\n\n\nAre the buildings mostly occupied?\n\nLook for stable occupancy over multiple quarters, not just peak numbers. \n\nFor most sectors, an occupancy rate above 90% is a healthy target.\n\nAdditionally, a longer Weighted Average Lease Expiry (WALE) provides better income predictability and protection against market volatility.\n\n\nHas the REIT paid distributions consistently in the past?\n\nA history of steady or growing distributions is often a sign of prudent management and a resilient portfolio. \n\nWhile past performance doesn’t guarantee future results, it demonstrates a commitment to shareholder returns.\n\n\nIs the REIT borrowing too much money?\n\nIn Singapore, REITs have a regulatory gearing limit of 50%.\n\nMost maintain an average of just under 40%, indicating conservative leverage.  \n\nCheck the Interest Coverage Ratio (ICR), which measures how easily a REIT can pay its interest on its debt from its operating income; a higher ratio means a larger safety buffer.\n\n\nDo I understand how the REIT makes its income?\n\nAre you comfortable with the specific risks of a REIT’s industry?\n\nIf the business model feels overly complex, it may be worth looking for a simpler alternative.\n\nWhat This Means for New Investors\nREITs can be a good starting point for new investors to learn the fundamentals of the market. \n\nIt is important to keep your expectations realistic and know what you are buying.\n\nREITs should be part of a broader, diversified portfolio.\n\nIncorporating them into your strategy can help lower overall portfolio volatility and provide a steady stream of passive income.\n\nGet Smart: Income Is Attractive, Understanding Is Essential\nREITs are popular for good reasons: steady income through distributions, low barrier-to-entry, simple structure, and familiar assets. \n\nBut don’t simply chase yield. \n\nExperienced investors take time to understand how REITs work and how to best incorporate them into their portfolios.  \n\nThe SGX is strengthening, liquidity is rising, and MAS’s market revival plans are creating a more supportive backdrop for yield-focused assets. If you want to understand which REITs could benefit most from this renewed momentum, join us for our free webinar, The Big Singapore Stock Market Rebound (2026’s Dividend Opportunity). Secure your free seat here.\n\nHow do rich Singaporeans invest when volatility hits?\n\nThey turn to companies with cash, history, and discipline. This free report highlights 5 blue chips that deserve your attention. Get your copy here and see who made the list.\n\nFollow us on Facebook, Instagram and Telegram for the latest investing news and analyses!\n\nDisclosure: Wenting does not own any of the above-mentioned stocks.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"tenantId":"TBGLOBAL","deviceId":"web-server-community-laohu8-v3","version":"4.36.0","shortVersion":"4.36.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2601785043","isCrawlerRequest":true}