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?