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Why I’m Selling All My REITs Now

Some of you may remember me mentioning that I first started my investing journey with REITs back in 2019.

But fast forward to today, in 2021, I’ve been progressively selling off my REITs and plan to completely sell all of them soon.

At the time, as an investing newbie, I felt that investing in REITs was the right move for me.

So what changed over the past 2 years that led me to this decision?

In this post, I’ll talk through my thought process from why I bought REITs in the first place to why I’m selling them off now.

What Are REITs?

REIT stands for Real Estate Investment Trust.

REITs manage income-producing real estate and primarily make money from the rent that their tenants pay.

For example, Mapletree Commercial Trust (MCT) is a commercial REIT and owns commercial buildings like malls including VivoCity and Alexandra Retail Centre (ARC).

So MCT collects rent from the shops in VivoCity and ARC.

There are many different kinds of REITs other than commercial REITs.

Healthcare REITs like ParkwayLife own hospitals and clinics while hospitality REITs like Ascott own hotels and service apartments.

Why Did I Buy REITs?

Close To Home

One of the primary considerations for picking my first investment was that I wanted to invest in something on SGX.

As a beginner with no prior exposure to investing from my family and friends, I was initially pretty sceptical about investing.

While I had read about how mediocre SG’ investments tend to be as compared to international markets, I didn’t feel comfortable enough to dive straight into the deep end of the ocean.

So I wanted to get started with SG investments to dip my toes into the water and experience what it’s like to invest.

Reasonably Diversified

Next, I also knew that I wanted to invest in something that is diversified to reduce risk.

After narrowing down the scope of my first investment to something on the SGX, there weren’t a whole lot of options for this.

Sure, there’s the STI ETF, but that’s one investment that I didn’t want to make (more on this in a future post).

When it came to REITs, I felt that they are generally well diversified investments.

Each REIT tends to manage several different pieces of real estate, which may be local, overseas, or a mixture of both.

And depending on the type of real estate the REIT owns, there may be many different types of tenants that have leases with each real estate.

For example, MCT owns VivoCity. Within the mall, there are many different types of tenants (ie shops) such as restaurants, retail stores, a cinema, and etc.

So, technically speaking, MCT comprises many different types of businesses even though it’s only a single REIT.

As compared to buying a stock like DBS whose business is primarily in banking, I felt that MCT (and REITs in general) is more diversified.

Why Am I Selling REITs?

Lacklustre Performance

As I mentioned earlier, I started investing in REITs in 2019 – just before the Covid crash hit in March 2020.

REITs were hit pretty hard then, and many of them produced subpar returns over the past 1-2 years as a result.

Of course, 2 years is an extremely short period of time to judge whether an investment is good or bad.

So my decision wasn’t really made based on this reason.

But this spurred me to consider something more important that I hadn’t considered before, which is opportunity cost.

Opportunity Cost

During the time of the Covid crash in March 2020, I was also invested in international equities.

Expectedly, the drawdown I experienced from those investments was larger than that from my REITs, since they are generally riskier investments.

But the market made a quick recovery and within months, those same investments rebounded to reach all-time highs and are still climbing today.

Meanwhile, even though REITs have also been recovering, it hasn’t been at the same pace.

This led me to consider the opportunity cost of holding onto my REITs.

Investing my money in REITs means not investing my money in another investment. So, are REITs worth my while?

Short-term poor performance aside, what do I stand to gain from investing in REITs in the long term?

REITs are generally known for high dividend yields at the cost of poor capital growth.

This is because REITs are legally required to distribute at least 90% of their income as dividends.

Thus, many REITs have annual dividend yields of 4% and above, some even going as high as 8%.

I’ll assume an arbitrary average of 5%, and I see this as the best potential upside for holding onto my REITs.

To consider the opportunity cost of holding onto my REITs, I compared this against the expected returns for other investments, like an S&P 500 ETF.

According to Investopedia, the average annual return of the S&P 500 is 8%.

From this, it’s clear that in the long run, investing in an S&P 500 ETF will produce significantly higher returns than investing in REITs.

So even if REITs are currently performing well, realistically speaking, they’d still underperform against the S&P 500.

The longer I continue leaving my money invested in REITs as opposed to an S&P 500 ETF, the more it’ll cost me in the form of returns.

This disparity in returns isn’t recent news and actually, it should be expected.

The reason why this disparity exists and why it solidified my decision to sell REITs is related to investment goals and risk appetite.

Investment Goals & Risk Appetite

Personally, my investment goal is to build long-term wealth – in 20 or 30 years’ time.

To reach this goal, I want to make investments that will produce the highest expected returns within my risk appetite.

Typically, investments with a higher expected return are riskier and vice versa.

So, while equities like the S&P 500 may produce higher expected returns than REITs, they also come with higher risk.

But this level of risk is still within my risk appetite, so it’s an investment I’m willing to make.

Given my risk appetite, REITs are not the right investment to help me reach my investment goals.

While I would still be able to accumulate wealth in the long run with REITs, it would take a longer time to amass the same amount of wealth than if I invest in other equities.

There is a misalignment between my risk appetite + investment goals and what I’m currently investing in, so it doesn’t make sense for me to continue investing in REITs.

This is understandable because my reason for investing in REITs isn’t the same as my reason for investing in, say, an S&P 500 ETF.

When I first started my investing journey with REITs, my intention wasn’t necessarily for REITs to remain in my long-term portfolio.

They were simply meant to be the starting point for my journey.

And after I got more comfortable with investing, my intention was always to continue with other riskier investments, which I did after a few months.

Recognising this now, I think that selling off my REITs in favour of other investments is a better move for my portfolio and goals.

How I’m Selling My REITs

Back then, I bought all my REITs using DBS Vickers, so they’re all owned in my CDP account.

Broker fees for CDP-linked accounts are generally expensive across the board at $25/trade for most brokers.

Thankfully, there’s a broker that’s much cheaper than others and only charges $8.80/trade instead.

I wrote an earlier post about this which you can check out here if you’re interested.

To summarise,

The main reason I decided to sell all my REITs is that it’s not the best investment for me at this stage of my life.

I started my investing journey with REITs because they met my needs at the time.

But as time passed and I started to get comfortable with riskier, non-SG investments, my needs started to change.

And along with that, the suitability of REITs as part of my investment portfolio.

So my decision to sell REITs has nothing to do with how I think they’re going to perform moving forward.

At the end of the day, I came to this conclusion after reflecting on my investment goals and risk appetite.

If you’re thinking of making a similar move, or any other investment decision for that matter,  make sure you consider yours.

4 replies on “Why I’m Selling All My REITs Now”

In that case, will there be a time when you go back into REITs? Or under what circumstances would you recommend one go into REITs ?

Hey PK,

Glad to hear from you again! Thanks for continuing to check out my blog and leaving a comment. I’ve asked myself those questions too.

Since REITs are known for high dividends, I may start to invest in them again when I’m approaching financial independence and I want to receive passive income from my investments to live off of. Earning dividend payments from REITs may incur less tax than selling off a portion of my portfolio, so this is possibly a good solution.

I think SG REITs are a generally good investment for people who want to invest in the SG market, or for people who are into dividend investing. Of course, given that they are ok with the expected returns from REITs as compared to riskier investments. Personally, neither of these cases are true for me, so I feel I’ll be better off without REITs.

Hope this helps!

Hi TFS, thanks for your sharing and thought on REITS. I am recently started to invest. I want to use the SRS account to invest in some low risk and stable growth investment products. Do you consider REITS or STI suitable for SRS investment?

Hi Michelle,

Thanks for checking out my blog and leaving a comment!

If you’re looking for low-risk investments, I don’t think REITs or the STI are suitable. They are both considered equities and are highly subjected to market volatility. To manage risk, you might want to consider allocating funds to bonds instead.

In terms of stable growth, again, I don’t think REITs or the STI are the right products. The structure of REITs make it so that growth isn’t the main form of returns, but rather dividends. And as for the STI, I don’t consider its growth to be something worth investing in.

If you’re investing with retirement in mind, REITs may be a better option than the STI simply because they pay out a decent amount of dividends. Blue-chip REITs like Mapletree/CapitaMall pay out 4-5% dividends annually, which provides a good annual return or income stream if you wish to withdraw from your SRS account. The STI doesn’t provide as consistent of a return in comparison.

Hope this helps!

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