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Tuesday, 22 July 2014

REITs versus Brick and Mortar Properties

Yes, REITs do own property assets. 

They could be residential, commercial, or industrial properties; hotels, hospitals, and what have you - just as long it's a building or space where you can lease it out to tenants.

Does that mean when I own REITs, I am a property investor too?

You can call me Al!

First of all, if it makes you happy, why should you care what others think what you call yourself? 

I call myself a nano hedge fund manager. Laugh all you want. I choose it not because of hubris; it's to remind myself to focus on absolute returns and to be able to do it both ways (stop sniggering, it's not what you're thinking!)

REITs are equities

Having said that, to me, REITs are no different from any other equities. It's just a paper asset where we "own" a fractal share of a company - nothing more; nothing less.

As a minority shareholder, do I have the power or influence to hire and fire the CEO? Decide his/her compensation? Do I get to approve the strategic plans of the company like the Board of Directors do? Was I ever consulted whenever a company takes out a huge banking loan? Or when they do a Rights Offer? Or Share Placement to another idiot institution investor so as to dilute my existing holdings in the company?

No. Hence, when I own shares, I don't call myself a Business Owner. (I consider myself more of a freeloader)

Using the same logic, when I own a REIT previously (sold for capital gains), I don't consider myself a Property Investor either.

It's same same but different!

Property is about king of the castle (or dog house)

A brick and mortar property that I own is a physical asset. It's something I can feel and touch.

I can pretty much decide whatever I want to do with it. Rent it out, do an asset enhancement (renovation), knock down a wall or two, leave it empty gathering dust, etc. 

Of course there are certain restrictions, especially if it's a HDB or Strata unit...That's why properties with less onerous restrictions on the ownership cost a lot more...

What's the difference between paper and physical assets?

Let's take the example of gold. In theory there's no difference between owning physical gold and buying a Gold ETF. But in period of distress and you need to get away quickly, try bribing the pilot or boatman with a Gold ETF statement...

REITs won't go to zero?

Eh... In US, where the REITs market is a lot bigger and deeper than ours, there are some REITs that have sought bankruptcy protection... 

During the GFC, I was aware of 2 SGX REITs that almost failed... Lucky 2 white knights came to the rescue. Hell hath no fury like a yield investor scorned! Try going through a dividend suspension or a massive dividend hair-cut as a REIT investor during 2008... 

Similarly, remember when AIG almost failed during the GFC? Read about worried policyholders queuing outside the Robinson Road AIA building wanting to surrender their policies?

Isn't insurance "supposed" to be safe? Well, that's paper assets for you.

Therefore in investing, never say never!

Property can go to zero!

Yes! For leasehold properties, the value can go to zero. "Ah ber then"?  Sometimes I read funny statements in the internet that big daddy cheat us, we don't own our HDB homes, etc... 

You can't really have a conversation with such people if they don't understand the meaning of leasehold. 

So be clear on whether you are leasing or buying a freehold property. 

How to visualise 99 years? Just look at HK. The New Territories were leased to UK for 99 years, and I think the Britons made a lot of money out of these 99 years. So 99 years is long enough to make some serious money if we are lucky! Stop complaining already.

All asset classes went down in 2008

Don't listen to me. If you were around in 2008/09, all you have to do is to go down memory lane or do your own research if you were sleeping at the wheel then.

ALL asset classes went down.

Even gold!?

Even bonds!?

When you have margin calls and redemptions by shell-shocked investors, money managers have to liquidate whatever assets they can sell - even the good ones. 

But with QE money printing, gold and bonds rallied (after a brief temporary dip) while equities lagged behind. (Something to be said about having other asset classes in your portfolio eh?)

As for property in Singapore, did we have 50% correction like for STI? Not even 20% dip for Singapore properties right?

With QE and zero interest rate policy in the States, brave property investors that bought in 2009 were a happy lot especially after cashing out in 2013. Even happier when you factor in the 5 to 1 leverage! Without it, property investing is too boring for most "investors" - who are actually speculators.

So no single asset class can protect you during 1997, 2000, 2008 - unless you are great with market timing by going 100% into cash - which is an asset class all by itself.

Those with cash in 2009 is like a kid in a candy store.

Many wished they had more cash rotting in the bank during 2009!!!

Man-whoring ways

If you are not a one woman man as in loyalty to one asset class only, welcome to the world of prostitution: I am a equities man-whore.

Big daddy says we must constantly re-skill and upgrade.

Well, I am levelling up from equities man-whore to asset-class man-whore!

Life time learning?


  1. Replies
    1. CW,

      You sianz?

      I laggi boring!


  2. Hi SMOL

    The next thing we know SMOL has a 51% shareholder in a REIT ;)

    Strange that some people want to make decision in a business while some just want to be sleeping minority business owners and let the management do the job.

    When unitholders are making money, everyone is satisfied. When things go wrong, they want to put the blame right to the management. Anyone but not themselves.

    1. B,

      If I 51% majority, I am not a shareholder; I am a Business Owner (Land owner class).

      I can screw with others; others can't screw with me.

      The most the other freeloaders can do is to sell down their shares.

      Even better!

      If I can take private the same company at a lower price than my IPO price, who's your daddy now!?

      That''s why when SMRT is making money, higher share price and increasing dividends, no minority shareholders ever voiced concerns during the AGM on the stagnant dollar share of maintenance costs versus the increasing train counts and greater time interval frequency used (Don't ask. I've no clue what I've just wrote).

      Human nature has not changed much. Whoever gives us sugar, we shout: "Daddy!"

      And whoever takes away our entitlements, we cry: "Your Mother!"

  3. Hi SMOL,

    In investing, never say never? You just said it! Twice! lol

    1. LP,

      I got owned by you!

      Hands up; head down....

      You got me :)

  4. Hi SMOL,

    An honest and brutal post.

    Why do you even need to expose it?

    Thanks nonetheless.

    1. L Young,

      Eh... You're welcomed?

      I didn't pull back the curtains or remove any covers.

      I merely stated the obvious:

      Sky blue; trees green.

  5. We can't sell our window or door; but we can sell some REIT shares.

    Okay to have some consolation on soft assets like holding REITs.


    1. CW,

      Hence it's never black or white. Some found out life isn't so rosy if we are asset heavy and cash light....

      I don't mind having several asset class under my portfolio.

      Each have a role to play at different cycles of our journey ;)

    2. Now you are rich enough to do meaningful asset class allocation to have significant impact across different asset classes.

      You have arrived!


  6. Let us ponder on this hypothetical question?

    If you only have a million $ and you are allow only 2 choices. 1 to buy a rental property to collect rent. or 2 to invest in equity to collect dividends. Which one will you choose and why? Seems to me i am asking a "no-brainer" question? On the other hand, someone may not think so. No?

    1. 1) temperament,

      I'll let others answer you OK?

      By the way, next time you want to invite discussions, try not to "steer" or "bias" the discussions with remarks like "no-brainer".

      Like that who dares to speak up in case we look foolish by being the odd one out?

      Luckily, I don't think it's a no-brainer ;)

      2) Other readers,

      I'll play "facilitator". Please feel free to say your peace and "spar" with temperament.

      There no right or wrong answers here. It's all about opinions, and opinions can't be wrong ;)

      Game on!

    2. For estate planning; it is harder to divide properties but for stocks it just $10 transfer fee per counter. Ha Ha!

    3. ya, no brainer question! i wouldn't even answer it.

    4. so smol, you also chicken out haha....

    5. SMOL,
      Ah.......... My apology if you missed my "on the other hand". My philosophy of life is we all have 2 hands. Maybe when i was much younger, i used to think i only need one hand.

    6. coconut,

      That's what I feared... If everyone assumes its a no-brainer, who will speak up?

      I still think its NOT a no-brainer.

      Knowing me, I will pose a lot of clarifying questions, and that would suck out the fun for others...

      I will reply by tomorrow. Don't you worry. Hope there are other self-assured readers out there besides CW.

      I always full of opinions one; doesn't mean I am right though.


    7. temperament,

      No apologies needed. Just giving feedback that you may not be aware of the "unintended message" your choice of words may have.

      A simple and neutral: "I have 2 choices... What do you think?" may suffice.

      Just look at coconut's reply. Your "no-brainer" has over-shadowed everything else you have written ;)

      By the way, your "on the other hand" with a "No?" behind sounds rhetorical. At least that's my take on first reading ;)

      Nothing wrong lah! From the way we write, it reveals a lot about ourselves.

      You are confident, articulate, and can defend your opinions well, especially at VB. You are shepherd class. And shepherds talk like that ;)

      How else can ITE graduate be where you are now? Own shares, have a 2nd investment/rental property, and looking for ways to hedge your portfolio with inverse ETFs, etc.

      Now that's not exactly "retail" is it?

      It's my occupational disease... Don't mind me.

    8. Oh Dear!
      i think i have "over-express" (being boastful or something like that?)
      i better take a breather before someone think so.
      But no matter what, not only we need to exercise our body but also our brain. That's why i kacheow you bloggers!

      Eh.... spying on me in VB? Ha! Ha!
      Let you know a secret. When i was about 21 years old, remember how i was trained in a HK's Future bucket shop in Singapore, by a HK's boss - - super duper motivational speaker, every morning. i really don't know how much of that stays with me in my subconscious mind. Plus i have really a "BO KIASI" mentality at heart though i have have my fear and greed like everyone else, at times.

    9. temperament,

      Not boastful, but strong and masculine. Which is good in front of the girls ;)

      Jordan Belfort (Wolf of Wallstreet) and your HK boss are super duper alpha shepherds ;)

      Spy on you my foot! You post everywhere at VB. Don't want to read also cannot!

      How? Come down to earth a bit?

      You help me grow and "sharrpen my saw" with your "kacheow"; I return the favour with my "pokes".

      You have gone through interesting times. I was too young for the CLOB trading days. From the stories I've heard from my senior colleagues, it sort of made our SG penny stocks and S-chips pale in comparison...

      Bucket shops have sort of morphed into Spot Forex brokers of today ;)

    10. CLOB SAGA started in Sept 1, 1998 .

      i started investing in SGX in 1987/1988- for about 11 years when CLOB SAGA happened. Though i witnessed the CLOB SAGA and many people suffered horribly. i was never in the CLOB Market. And thanks be given to GOD i just simply didn't had the faith in CLOB though i had lost some money in SGX through speculation (5 figures sum) too.

    11. Nope!
      But i went in after the 1987 market crashed, you can say i willingly got kena lol. The market got worse and worse. 1st time horrible Bear Market experience. I almost fainted then. No i almost die then. Thank GOD i survive until today.

    12. temperament,

      Now that's baptism by fire!

      Like they say: Big calamity don't die sure got future prosperity!

  7. Yet another powerful post! "same same but difference", I like this tagline a lot. ;-)

    1. Richard,

      CW is right. You are like a kid who have a new toy ;)

      Glad you are having fun!

      I'll wait patiently for your honeymoon phase to be over, and you gain the confidence to challenge or politely disagree with me ;)

      Now that's conversation!

  8. Hi SMOL,

    I was one of those who wished I had a pile of cash in 2009. But unfortunately, I did not. :(


    1. Hello naro!

      It's always nice to see a new face here! Welcome!

      We learn from experience.

      That's why you see veteran investors and bloggers all have some "opportunity fund" stashed somewhere. In military parlance, it's called "reserves".

      I just read your blog post on ILP. Now you have your own personal experience and reflections on ILP versus term + unit trust ;)

      I am a believer of "crash got sound one"!

  9. back to temperament no brainer question, so stocks or property investment?

    i had done both and i flip them like flipping pancakes!

    so either way the results stay the same with me haha. now i'm relearning what investing is all about.

    1. in another words, i have no brain for investing, yet!

    2. coconut,

      Who needs to be an investor when you can:

      1) Lost $300K and not self-destruct.

      2) Win back the $300K and not self-destruct.

      There are carnivores, herbivores, and omnivores. We are what we are.

      Wow! Lucky I cut-loss on my Simsci last week. Today went up to 381.5!!!

      If not, the paper-cut may turned out to be a razor blade cut!

      I've not mastered this reversal trade done by the pros yet. Imagine had I switched to long same time as I closed my short, I would have turned a loss to a win...

      Mentally not strong enough to do this trade yet :(

      It would have messed with my psyche if market turned south...

      Oh well....Work-in-progress trader...


    3. hello! its 600k lost! people must be thinking i'm dumb to do it again, ofcos, i'm not afraid to lose again. but this time i'm in as an investor ok! no cutting losses one haha....

      yes you are right, you need to master the flip and the flip and the flip, need a flexible mind and approach.

    4. I must take up yoga. Not flexible enough.

  10. After I started to read investment blogs, I realized old uncles like to speak in riddles, past victories and defeats, future warchest. Younger ones like to talk abt how to retire early on "passive" income.

    Almost everyone would show their values and world view.

    Quite interesting. :)


    1. You see example of not-so-old uncle like SMOL also rich and already retire


    2. pf,

      One group sounds like our grandparents telling their stories; the other sounds like graduating classmates or ROD NS (my generation its ROD) mates sharing their plans for the future ;)

      Nice to listen, good to hear.

      But never forget to listen to your heart!

    3. I not uncle lah!

      Call me man-whole, call me SMOL, call me fool also can! Anything but UNCLE!

      I going through male-menopause. Very sensitive.

      Be nice now.

    4. Didn't know you already in 50s going through male-menopause.

      Thought you are in late 40s.

      hee hee

    5. Buay tahan.

      Wah si zhup chit buay sai wu male-menopause meh?


    6. Ha! Ha!
      Don't be psycho by CW. it's normal scientifically for man and woman to menopause at the age of 45 to 50. The later you menopause the better of course. Heck what's menopause? They now even have a viagra for woman.
      So don't worry too much mate. Who doesn't want to stay as young as possible?- as long as possible? From the 1st Emperor of China till now man(woman), it is the same. As young and as long as possible.

    7. Don''t worry temperament ;)

      I just playing with CW only..

      I am fine just as long I am still curious and find wonderment in the simplest of things :)

      To forever young!


  11. To forever YOUNG!

    To 千 年 老 妖

    1. temperament,

      To 笑傲江湖!



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