Real Estate Investment Trust vs Physical Properties, Which Suits You?

By Jen-Li Lim / iMoney.sg | September 12, 2018 12:58 PM SGT
Thinking about investing in real estate? Buying physical properties isn’t the only way to go about it these days. In recent years, real estate investment trusts (REITs) have emerged as a popular way to dip into the real estate market without directly buying a property.
If you’ve been considering investing in REITs, here’s what you need to know about them, and how they’re different from investing in physical properties.
What is a REIT?
A REIT is like a unit trust fund, in that it pools many people’s money to hold a group of investments. However, instead of investing in stocks and bonds like unit trust funds do, REITs invest in property. You can buy and sell REITs on the Singapore Exchange (SGX), just like stocks.
REITs are therefore a way to invest in real estate without having to directly buy a physical property.
REITs vs physical properties: what do you have to consider?
Here are a few factors you need to consider when deciding to invest in REITs or physical properties:
1) Capital needed
Buying a physical property requires a lot of capital. Typically, here’s what you’ll need to spend on:
Upfront capital: If you’re buying your first property, the upfront costs of buying a private property will include a 25% down payment, stamp duty, Additional Buyer’s Stamp Duty, legal fees (S$2,500 – S$3,000) and valuation fees (S$200 – S$1,500).
Ongoing capital: You’ll need a stable source of income to continue servicing your home loan. You’ll also need to pay maintenance fees, property tax bills and taxes on rental income.
Buying additional physical properties will require much more capital, especially with the enforcement of recent property cooling measures. Taking out a second bank loan to buy another residential property, for example, will require you to fork out 12% in Additional Buyer’s Stamp Duty and a 55% down payment.
Investing in REITs requires a much smaller initial capital. Since REITs are traded on the SGX like stocks, you’ll only need to buy a minimum of 100 shares. However, you’d probably want to invest more than the bare minimum; otherwise,...