Property vs Leveraged REIT?

[bright_84]

I think it's been argued that REITs as an investment have a better risk profile than a single property.

It's also noted that property has benefit of being able to leverage thus skewing the return.

So why not argue to mortgage your property and invest it in REITs? Overall portfolio balance a consideration for sure of course.

 

[Prof. Utonium]

As in your residential property?

 

[bright_84]

As in your residential property?

If you don't have another piece yes.

 

[bobobob]

I think it's been argued that REITs as an investment have a better risk profile than a single property.

It's also noted that property has benefit of being able to leverage thus skewing the return.

So why not argue to mortgage your property and invest it in REITs? Overall portfolio balance a consideration for sure of course.

The reits themselves already use leverage

 

[Shiny Things]

I think it's been argued that REITs as an investment have a better risk profile than a single property.

It's also noted that property has benefit of being able to leverage thus skewing the return.

So why not argue to mortgage your property and invest it in REITs? Overall portfolio balance a consideration for sure of course.

I think this generalises though: “why not mortgage your property and invest it in {anything}”? That’s just asking “why shoulidn’t I take on some extra leverage”?

It sounds like what you’re trying to get at is “why not own no real property at all; rent an apartment and invest the rest in REITs if you want to get exposure to the real estate sector”? I reason not to do that is that real estate doesn’t have a great return profile in the first place; it’s got the volatility of stocks, but a return only a shade higher than bonds.

And qwning real estate through a REIT brings that price volatility into a place where it can be seen. If you own a house, you can pretend that the price isn’t changing very much; if you own a REIT, you can’t pretend that the price isn’t moving around every day.

 

[pmstudent]

I think this generalises though: “why not mortgage your property and invest it in {anything}”? That’s just asking “why shoulidn’t I take on some extra leverage”?

It sounds like what you’re trying to get at is “why not own no real property at all; rent an apartment and invest the rest in REITs if you want to get exposure to the real estate sector”? I reason not to do that is that real estate doesn’t have a great return profile in the first place; it’s got the volatility of stocks, but a return only a shade higher than bonds.

And qwning real estate through a REIT brings that price volatility into a place where it can be seen. If you own a house, you can pretend that the price isn’t changing very much; if you own a REIT, you can’t pretend that the price isn’t moving around every day.

Hi ST, as much as I value your point of view, I have to beg to differ on this one. S REIT has been historically outperforming the STI in YTD, 1 year, 3 years, 5 years, 8 years, 10 years and 15 years, basically it outperforms the entire Singapore stock market in any time frame.

Source from OCBC research, data from Bloomberg (page 9):
https://research.sginvestors.io/2019/03/office-sector-ocbc-investment-research-2019-03-12.html

SREIT is proven to be a superior asset class.

 

[Shiny Things]

Hi ST, as much as I value your point of view, I have to beg to differ on this one. S REIT has been historically outperforming the STI in YTD, 1 year, 3 years, 5 years, 8 years, 10 years and 15 years, basically it outperforms the entire Singapore stock market in any time frame.

Source from OCBC research, data from Bloomberg (page 9):
https://research.sginvestors.io/2019/03/office-sector-ocbc-investment-research-2019-03-12.html

SREIT is proven to be a superior asset class.

Um. So for what it's worth, I can't see the data that was in the linked research report, but it sounded a bit off to me, especially given the way Singaporean resi real estate has flatlined since the ABSD kicked in. When I went to Reuters and checked, the STI (purple line) seems to have outperformed an index of S-REITs (orange line) over the last couple of years, and followed it pretty much tick-for-tick for at least five years before that. (This is all with reinvested dividends, as well.) Is there something I'm missing?

(And intuitively, this feels right - looking at the US, at least, real estate over the last century or so has tracked inflation a lot more closely than it's tracked economic growth. Stocks, on the other hand, have generally tracked growth, which tends to run higher than inflation.)

 

[OngHuatHuat]

Concept not really the same, reit mostly interest only loan, they have to refinance from time to time.

Residential properties on the other hand, as long as you repay the whole loan, the property belongs to you(no need pay interest).

 

[fairylord]

When I went to Reuters and checked, the STI (purple line) seems to have outperformed an index of S-REITs (orange line) over the last couple of years, and followed it pretty much tick-for-tick for at least five years before that. (This is all with reinvested dividends, as well.) Is there something I'm missing?

This part and the chart attached indeed make them get interesting.

Sorry for off topic

 

[pmstudent]

Um. So for what it's worth, I can't see the data that was in the linked research report, but it sounded a bit off to me, especially given the way Singaporean resi real estate has flatlined since the ABSD kicked in. When I went to Reuters and checked, the STI (purple line) seems to have outperformed an index of S-REITs (orange line) over the last couple of years, and followed it pretty much tick-for-tick for at least five years before that. (This is all with reinvested dividends, as well.) Is there something I'm missing?

(And intuitively, this feels right - looking at the US, at least, real estate over the last century or so has tracked inflation a lot more closely than it's tracked economic growth. Stocks, on the other hand, have generally tracked growth, which tends to run higher than inflation.)

Interesting chart, wonder how market data can be interpreted so differently.
In the link https://research.sginvestors.io/2019/03/office-sector-ocbc-investment-research-2019-03-12.html

You can click "Continue Reading" at the bottom, scroll to the bottom, click "Click to view full report", and check out page 9.

I wonder who is right and who is wrong.

 

[SpeedingBullet]

Alot of research report pick and choose their own data points. To quell all doubt, I have access to a bbg terminal (sitting right next to one). ST, if you'd like to explore further, give me the:

1. Relevant ticker symbols (BBG ticker only)
2. Time period
3. Any other parameter for LFL comparison

i'll then do a simple TRA <GO>

 

[BBCWatcher]

According to the available data (URA indices), non-retail commercial real estate in Singapore has performed better than residential real estate.

 

[pmstudent]

Alot of research report pick and choose their own data points. To quell all doubt, I have access to a bbg terminal (sitting right next to one). ST, if you'd like to explore further, give me the:

1. Relevant ticker symbols (BBG ticker only)
2. Time period
3. Any other parameter for LFL comparison

i'll then do a simple TRA <GO>

Please make sure to factor in dividend reinvesting as well,thx

 

[SpeedingBullet]

Please make sure to factor in dividend reinvesting as well,thx

That's what the TRA function is for.

 

[pmstudent]

That's what the TRA function is for.

Hi SB, a few indices that you can compare with STI Total Return:

S REIT 20 Index :
REIT2.SI
RE2TR.SI (Total Return)

REIT Index :
REIT.SI
REITR.SI (Total Return)

I performed a very rudimentary comparison using SGX web site :
https://www2.sgx.com/indices

I compared STI and the commonly used SREIT 20 index for the past 5 years, WITHOUT considering dividend.

S REIT 20 : 23.77%
STI : 2.78 %


Thanks !

 

[SpeedingBullet]

Those are not BBG tickers. I tried Googling them, never even heard of those indices, some of whom have zero volume. Whos their issuer and/or manager?

Why not pick a more recognized name like S&P Singapore REIT Index or FTSE ST Real Estate Investment Trusts Index?

Hi SB, a few indices that you can compare with STI Total Return:

S REIT 20 Index :
REIT2.SI
RE2TR.SI (Total Return)

REIT Index :
REIT.SI
REITR.SI (Total Return)

I performed a very rudimentary comparison using SGX web site :
https://www2.sgx.com/indices

I compared STI and the commonly used SREIT 20 index for the past 5 years, WITHOUT considering dividend.

S REIT 20 : 23.77%
STI : 2.78 %


Thanks !

 

[Shiny Things]

Hi SB, a few indices that you can compare with STI Total Return:
[...]

I compared STI and the commonly used SREIT 20 index for the past 5 years, WITHOUT considering dividend.

S REIT 20 : 23.77%
STI : 2.78 %

Cheers mate, this is stuff I can use. (Don't worry SB, he's not trying to pull a fast one; those are Reuters tickers, I can grab them off Eikon.)

Anyway, slightly annoyingly I can only get total-return data back to about 2016, but here's what I have. I think the upshot is you're right, but most of the outperformance was driven by a 10% spike in REITs over the last six months that wasn't matched by the broad equity market. I don't think that's enough to hang a thesis on.

Update: no, I still don't get it. The top 10 holdings for the SREIT and the Reuters index are the same, in slightly different orders: CapCom, CapMall, Ascendas, Mapletree, Suntec REIT... and if I look at them using the TRTR tool (Reuters equivalent of TRA) they seem about the same.

I still think that you can't hang an investment thesis on the recent outperformance of REITs over the last six months, but I will give you that the total returns of REITs aren't as bad as my original chart made them look.

Anyway, here's the chart that I have; you can see the big spike in REITs (the orange line) starting in October.

 

[pmstudent]

Cheers mate, this is stuff I can use. (Don't worry SB, he's not trying to pull a fast one; those are Reuters tickers, I can grab them off Eikon.)

Anyway, slightly annoyingly I can only get total-return data back to about 2016, but here's what I have. I think the upshot is you're right, but most of the outperformance was driven by a 10% spike in REITs over the last six months that wasn't matched by the broad equity market. I don't think that's enough to hang a thesis on.

Update: no, I still don't get it. The top 10 holdings for the SREIT and the Reuters index are the same, in slightly different orders: CapCom, CapMall, Ascendas, Mapletree, Suntec REIT... and if I look at them using the TRTR tool (Reuters equivalent of TRA) they seem about the same.

I still think that you can't hang an investment thesis on the recent outperformance of REITs over the last six months, but I will give you that the total returns of REITs aren't as bad as my original chart made them look.

Anyway, here's the chart that I have; you can see the big spike in REITs (the orange line) starting in October.

Got it. Different analyst is using different benchmark, there don't seems to be a de facto REIT index, example : Top 20 REIT performance is much more better than REIT index.

Anyway, the point I am trying to say is contrary to what you and BBCWatcher thought, REIT - especially S REIT - can form a cornerstone of your retirement portfolio, complimenting the Global Index.
The safeguarding feature of REIT structure (segregation of trustee and REIT manager), regulation of gearing ratio (max 45%), reputable government linked manager (Mapletree, Capitaland, Ascendas) their low cost of fund (Temasek is the major shareholder) and compounding dividend re-investment over the long term, is very attractive.

 

[Shiny Things]

The safeguarding feature of REIT structure (segregation of trustee and REIT manager), regulation of gearing ratio (max 45%), reputable government linked manager (Mapletree, Capitaland, Ascendas) their low cost of fund (Temasek is the major shareholder) and compounding dividend re-investment over the long term, is very attractive.

The things you're pointing out are independent of "real estate as an asset class", though. The things you're mentioning are all to do with the vehicle you invest through, and they don't make much difference to the actual returns.

For example:

• All ETFs have (or at least should have) that segregation of trustee and fund manager. It's not just a REIT thing.
• A "government-linked asset manager" doesn't mean they'll be any good. Real estate isn't magically worth more just because the government owns it, and buying something just because you think it has the government's stamp of approval... not a great idea.
• Having Temasek on your shareholder register doesn't mean anything. Ask circa-2007 Merrill Lynch how that went for them;
• Compounding dividend reinvestment is something you can do yourself.

If you're going to put something into your portfolio, the things you need to ask yourself are "does this thing deliver better returns, have low volatility, and/or have low correlation to the things I already have in my portfolio"?

S-REIT returns seem pretty highly correlated to the returns of Singaporean equities at large. Buying a lump of S-REITs is basically like buying a lump of Singaporean equities.

 

[BBCWatcher]

S-REIT returns seem pretty highly correlated to the returns of Singaporean equities at large. Buying a lump of S-REITs is basically like buying a lump of Singaporean equities.

There’s a reason for that: the Straits Times Index of 30 Singapore listed stocks is very real estate heavy compared to other stock markets. When you’re buying ES3 or G3B (or the U.S. listed EWS for U.S. persons who want to overweight Singapore listed stocks — all 3 of you ), you’re already investing in real estate in a major dollop.

I don’t think there’s any reason whatsoever to overweight real estate when investing, except for your own personal medium-term (or longer) occupancy. And there’s absolutely no danger in Singapore that you’ll be underweighted in real estate. Sometimes I wonder if there’s any business activity at all in Singapore that isn’t real estate or closely real estate-linked.