Category: SG Budget Babe

What you should look at before buying an ETF

With a wealth of information out there today, it is easy for anyone to get lost in a sea of financial jargons and articles that keep telling you, XX things you MUST know before investing!Recently, I received an email from a reader who asked me what I w…

Should I get a HDB or a bank loan?

In my last post, I promised to elaborate more on the common dilemma faced by most new homeowners: should you get a HDB or a bank loan?To put things into context, BTO prices range from $200k (Yishun) – $600k (Bidadari), whereas the average price of a 4-…

The 5 best housing loans right now

A number of readers have been asking me about housing loans lately, so I thought I’d touch on this topic today. I’m generally more inclined towards bank loans at this point in time (and have been since I highlighted it here in 2016), given how they’re mostly cheaper given the low interest rate environment we’re in right now.

(I’m in the midst of writing another article comparing the pros and cons of getting a HDB vs. bank loans, so you can keep an eye out for that if it has been an issue weighing on your minds as well.)

In the meantime, this article is for those of you who have been asking me which bank loans to look at in 2017.

Background: What you need to know about interest rate packages

There are several banks in Singapore offering home loans at similar, yet varying interest rates. Fixed rate packages and floating rate packages are the two most popular rate offerings prevalent in the market. As the names suggest, a fixed rate package involves fixed repayments on a monthly basis for a specific period of the loan, while a floating rate package is subject to slight variations in interest rate throughout the loan tenure due to market and economic fluctuations.

If you’re looking for a home loan in Singapore, arriving at the best deal can be quite an effort, especially when the competition is stiff. Banks use various means, including periodic promotions on interest rates, to lure borrowers and augment their market share. With the steep increase in the number of borrowers, banks are frequently adjusting their offerings to lure more customers. This generally means good news for us.

Let’s check out what different banks have to offer and figure out the best housing loan deals for buying private property in Singapore.

Here are the 5 best bank loans for housing right now

1. DBS Home Loan
One of the most attractive features of the DBS Home Loan is that you can benefit from an interest rate ceiling on the floating rate package, for a 2-year period. The floating rate package is pegged to the DBS 9-month FD interest rate (FHR9). For the first two years of the tenure, your floating rate of interest would be below 1.72% p.a. Under the promotional floating rate package, you can expect an interest rate of FHR9+1.07%. FHR9 currently stands at 0.25%.

The floating rate currently stands at FHR9+1.55% p.a. The fixed interest rate package comes with an interest rate of 1.68% p.a. for the first 3 years.

Besides, you can choose a tenure of your choice and also get preferential rates if you have an existing relationship with the bank.

2. HSBC Home Loan

HSBC offers a SIBOR-pegged rate package and a 2-year fixed interest package. SIBOR-pegged loan rates depend either on 1-month SIBOR or 3-month SIBOR – which are currently at 1% and 1.124% respectively. These rates are updated by the ABSevery day, so you can check them for yourselves.

For buying a new property – whether under construction or completed – HSBC Home Loan comes with SIBOR packages of SIBOR + 1% p.a. for personal banking customers. Advance and Premier Banking customers can have it at lower rates, though. HSBC doesn’t disclose its fixed rate package on its website, but I reckon it is likely to be around 2% to 2.2% p.a. going by the current trend.

Up to 30 September 2017, the bank is running a home loan promotion where they’re offering SIBOR-pegged package for loans of S$800,000 or more at SIBOR + 0.52% p.a. (1.52% currently), and the 2-year fixed rate package at 1.52% for the first two years. Though essentially this is the same rate for now, SIBOR keeps fluctuating, albeit slightly, so future rates are likely to keep varying. The rate for the SIBOR-pegged package from 3rd year onwards is SIBOR + 0.75%, and for fixed rate package is SIBOR + 0.75% for the third year and SIBOR + 1% from the 4th year onwards.

3. OCBC Home Loan

OCBC has four different interest rate packages to offer for buying a house. Two of the package offerings are fixed rate offerings, one is variable, and the other is dependent on SIBOR.

In the fixed-deposit linked rate offering, the interest is pegged at 1.4% for the first year, and 1.5% subsequent to that for the duration of the loan. The rate is basically adjusted in accordance with OCBC’s 15-month fixed deposit interest rate.

The second rate package is a short-term fixed rate package where the interest rate remains fixed for the first two years, after which a floating rate will take effect. The current rate on the short-term fixed package is 2.38% p.a. The third and fourth rate packages – the SIBOR-dependent and Variable rate package – also have similar rates to offer. SIBOR-dependent rates are 3-month SIBOR+0.50% or 1-month SIBOR+0.55% (customers can choose either of the two). The variable interest rate stands at 1.25% p.a. for the first 2 years.

4. UOB Home Loan

UOB provides you with financing of up to 80% of the value of the property or HDB flat you wish to purchase. You can also get a bridging loan for a down payment if you’re expecting payments from a flat/home you intend to sell.

UOB’s Private Home Loan comes with three kinds of interest rate packages – fixed-rate, floating-rate, or a combination. Under the fixed-rate package, the rate remains fixed for the first two years.

Currently UOB has a promotional interest rate running. The fixed-rate package starts from 1.58% for the first couple of years, following which you the rate will be FDP+1.43%. FDP is the internal benchmark that UOB uses, based on its fixed deposit interest rates. The current FDP rate is 0.25% p.a.  

5. Citibank Home Loan

Citibank offers you a rate of SIBOR+0.7% p.a. on your home loan, again, a low rate of interest in comparison to most banks in Singapore. You can choose from a 1-month, 3-month, 6-month and 12-month SIBOR-adjusted interest rate when you pick Citibank for your mortgage loan.

Note that if you wish to apply for a mortgage loan from Citibank, the minimum requested loan amount should be S$750,000 (i.e. if you apply for the loan online). 

A quick recap :


Fixed Interest Rate Package

Variable/Floating Interest Rate Package

SIBOR-Linked Package


       1.52% p.a. for the first two years.

       SIBOR+0.75% for third year and SIBOR+1.0% subsequently

       SIBOR+0.52% for the first two years and SIBOR+0.75% henceforth for a loan amount of S$800,000 or more
       SIBOR+0.52% for the first two years and SIBOR+0.75% thereafter for a loan amount of S$200,000 or more (lesser than S$800,000) 
Same as floating rate package.


       1.68% for the first three years.

       FHR+1.55% subsequent to the third year

       FHR9 (Fixed Deposit Home Rate)+1.55% for the first three years

       Under the promotional offer, first two years will be FHR9+1.07% p.a.



       1.58% p.a. for the first two years.

       Subsequently, FDP+1.43%




       2.38% for the first two years (this is a short-term fixed interest rate package)

       1.40% for the first year and 1.50% thereafter

1.25% for the first two years

3-month SIBOR+0.5% for the first year or 1-month SIBOR+0.55% for the first year




SIBOR+0.7% p.a. (you can choose from 1-month, 3-month, 6-month and 12-month SIBOR).

Before you commit to any housing loan, remember to first compare to see which bank offers you the best rates! 

Disclaimer: This post was written in collaboration with

With love,
Budget Babe

Her World Brides Feature: Bride on a Budget

Can you hold a (budget) wedding without looking cheap?The answer is, yes!See what our wedding looks like in the exclusive 6-page feature in Her World Brides (September 2017 issue), where we share some sneaks into our wedding, as well as how we went abo…

What’s covered under your home insurance?

What is Home Insurance?

A lot of finance bloggers have covered life / term / hospital / investment-linked / travel insurance policies, but I didn’t find much information on home insurance so I thought today I’ll dedicate an article to this boring but important topic.

Home insurance policies are just about as exciting as watching paint dry, but they’re an important concept to grasp for all homeowners. A home insurance policy will cover the physical structure of your home as well as your personal contents within the four walls. To be more accurate, some agents distinguish between fire insurance and home insurance, so here’s a quick run-down of the differences:

Fire insurance

Home insurance





As low as a few dollars for a 5-year plan (eg. $5.50 for a 4-room HDB for 5 years of coverage)

Ranges from $40 – $400

What’s covered

Only covers damage to your home structure, replacement of any original fixtures or fittings by HDB / the rebuilding of your home for landed properties.

Does NOT cover damage to home possessions in the event of fire.

Covers the contents in your home, together with a few other quirky stuff that you probably never knew.

In the event of any unforeseen incidents like a fire or burglary, your home insurance policy will cover any damage caused to both the physical structure as well as the belongings inside your house (eg. TV, credit cards, jewellery, etc). A more comprehensive policy will also cover you for alternative accommodation expenses during the period where you’re unable to stay in your home due to such events.
While researching on this topic, I also realised there are a few unexpected and interesting areas that home insurance policies also cover!

Unusual things and situations that your home insurance could cover for

1. Identity theft

We’ve all worried about cyber security, and there are various home insurance policies that can cover theft of credit / debit card and personal documents. One such unique policy is the AXA SmartHome Optimum Plan, who has a Cyber Protector Rider to protect against identity theft, fraudulent internet transactions, disputes with online stores, and damages to virtual reputation. You could claim up to S$1,500 for legal expenses on private settlement and a maximum of S$15,000 for court cases!
Of course, whether your claim gets approved in such events is entirely up to the insurer, but this is definitely a new area of interest worth looking into especially if you’re looking to combine with your home insurance policy. Moreover, such an insurance is often offered as a separate policy, but AXA combines them into a single plan in this case. For instance, Chubb has its Identity and Wallet Protection Insurance which only covers theft of credit/debit/ATM card and personal IDs, whereas AIG offers ID Guard which covers identity theft, credit card fraud, and online and email scams.

2. Clothes, grocery expenses and other living essentials

I was pretty intrigued when I saw that Chubb’s Home Insure policy offers up to S$3,000 payout for expenses incurred on clothing, personal effects and other essential items if your home becomes uninhabitable for a period of time due to the unforeseen events. Pretty cool!

3. Burst water pipes

Remember that story about the Singaporean family who came back to their brand new BTO flat only to discover it covered in crap due to a burst pipe? Well, home insurance protects your property against such tragic incidents as well.

4. Damage or loss of belongings of your household help and guests

Suppose your friend who’s staying over at your place for the night accidentally breaks her pair of spectacles. Or, a gold ornament of your domestic help gets stolen from the house. These things are also covered by your home insurance or home contents insurance (of course, only if you have opted for them at the time of buying the policy). Bet you didn’t know this!

You will have to pay an excess of S$100 or thereabouts, and the cover usually ranges from S$500 to S$1,500 per item. Some policies offering these benefits are Aviva Home Plus Policy and NTUC Income Enhanced Home Insurance.

5. Your Bicycle

If you’ve invested in a good bicycle, chances are that you’ve probably worried about it getting lost or damaged. The good news is that if this happens when your (or your family’s) bike was on your building premises, you can claim up to S$300 through insurance. Tokio Marine Flexi-Home Insurance and AIG Homes Advantage are some policies that offer this.

Read also: Singles Tell Us 6 Tips They Learnt as First Time Homeowners

6. Groceries in your refrigerator

No, you can’t make a claim for that block of rotten cheese you forgot about because it was hidden for ages behind boxes and boxes of other frozen food. But if some food items in your freezer gets spoilt because of temperature fluctuation, power failure, lightning, or a technical problem in the refrigerator/freezer/chiller, you can claim up to S$500 per item as insurance. (You still have to pay an excess of S$100 though, so it only makes sense to make a claim for items that are actually very expensive to replace.) Usually companies approve such claims with ease when you haven’t been home for a few days – for example when you are on a vacation – rather than when you have been at home all the time.

Policies that offer this benefit include DBS HomeShield, ETIQA eProtect Home, and MSIG Home Insurance.

7. Pets

Last but not least, most pet owners I know don’t actually bother to buy pet insurance, which is surprising considering the benefits they can get. Anyway, you’ll be surprised to know that your home insurance policy can also cover:

      Accidental death of your pet

      Theft of your pet

      Damage caused by your pet to a third-party property

I’ve no idea why, but usually only dogs are covered, although some policies insure cats as well. Generally, the maximum amount offered is around S$500 per pet, for a maximum of 3 pets. You can get this in plans such as EQ HomeGuard and American Express Home Insurance, or go directly and get a dedicated pet insurance policy instead.

What I found through this exercise was that each home insurance policy is customisable as per your needs, and not all plans offer the same benefits or the same cover. Contrary to what I had expected, there’s a lot more that you can opt to get coverage for instead of simply the physical structure of your home and the contents in it. It is worth comparing across the different insurers to see which kind of coverage you would like to opt into vs. the premiums, so if you haven’t bought a home insurance plan yet, you can head over to get a comparison on before getting one.

If you’d like to get a personal loan or a credit card, you can also visit to easily compare and apply for the best offers in Singapore.

Disclaimer: This post was written in collaboration with

With love,
Budget Babe

DBS Be Your Own Boss (BYOB) IS more superior than OCBC 360

I’ve been requiring quite a number of enquiries regarding my previous post, where I highlighted DBS’ latest Be Your Own Boss promotion as an extremely good deal.

Naturally, there were people who were skeptical. 

I know, I know, mindsets are hard to change. It has been a few years since OCBC 360 became the first bank to introduce such high-yield savings, and people have been very skeptical of all the other accounts that followed after. Stubbornly still believing that OCBC 360 is the best, even though they’ve changed their T&Cs to reduce the interest time and time again.

I’ve covered UOB One, POSB Cashback and BOC SmartSaver which all came after OCBC 360, and each post had their skeptics as well. The latest to join the stable is DBS BYOB, and if you qualify, it is without a doubt the highest-yield savings account at the moment, but naturally some folks just find it hard to believe that good deals do exist.

Well, you can continue living in your bubble, because I’m here to outrightly say that OCBC 360 is no longer superior.

If this is indeed so, then I’d be worried because I said this in my original review post:

For the higher income-earners who can afford to park aside $3000 of savings every month but still don’t spend enough to consistently hit $500 on your credit card, you can also take advantage of this promotion to get even higher interest than your existing <2% p.a. on the other banks’ schemes.

I get worried when I recommend wrong stuff to you readers. BUT I was very sure I was correct and this reader was wrong. After all, it is easy to assume when you don’t bother doing the hard work or the leg work to back up your claims.

So for all of you who still think your OCBC 360 is superior, prepare to have your mind blown…
I used $40,000 initial savings based on the assumption that the average working adult in
Singapore should have no problem saving this sum after working for a few years, as I’ve shown here.

1.55% p.a. interest is used (0.05% + 1.2% + 0.3%) assuming that the person can’t consistently chalk up
the $500 min. spend on their cards,
which I highlighted as another good reason upfront why you should switch to DBS BYOB!
You can stick with your OCBC 360 and wave goodbye to that $1,860 extra interest that the rest of us will be happily getting on DBS BYOB.

Or, if you’re not young enough to qualify for DBS BYOB (<30 years old), how about UOB One, which I already highlighted last year as another superior account for those who have no problem meeting the $500 monthly credit card spendSome of the savvier folks have already switched to UOB One in all that time you spent thinking – this Budget Babe siao ah?! OCBC 360 is obviously better please. You can read why you should totally have done so as well here

Here are some other misconceptions I’ve encountered (based on comments and responses to my review). I remain by my original stand that DBS Be Your Own Boss is a superior product.

Misconception 1: There must be some sort of cap on the max. amount!
The cap is on your monthly savings amount in SAYE, with a max. of $3000 additional injections every month. 

For any ad-hoc deposits outside of the automated monthly transfers, those will only earn the base interest rate (0.05 to 0.25% p.a.).

Thus, if you simply followed my hack (including where I illustrated to transfer a max. of $3000 to SAYE monthly), you would still be getting the full maximum interest.

Misconception 2: Surely the more realistic transactions would be excluded
I had originally recommended chalking up the 5 monthly transactions via Grab / Uber payments, grocery shopping or buying NTUC vouchers, watching a movie, eating or drinking out, or shopping at retail stores like Watsons and Guardian where you can stock up on your personal care and grooming necessities.

Some folks didn’t believe it could be that easy. One reader even asked if topping up of ez-link would count (thank you, what a fantastic tip!):

I’ve checked with DBS on the legitimacy of this brilliant idea, and yes, it will qualify!

So go ahead and sign up!

Misconception 3: There must be a min. $400 monthly spend on DBS / POSB cards

Apparently two of my readers highlighted that when they checked with DBS, the bank customer service officer / retail branch salesperson insisted that there is a minimum of $400 spending for the 5 transactions. 

This was directly the opposite of my hack which I shared in my last post, where I highlighted how the DBS BYOB is fantastic because there’s no minimum monthly spend and you could technically make as little as 5 x $1 transactions to qualify. 

I’ve since confirmed with the corporate folks at DBS running this BYOB promotion that there is no minimum spend for the 5 card transactions.

I’m not sure why there are such instances of inaccuracies, but this is definitely not the first time I’ve heard of it. This reminds me of another incident where I strongly recommended POSB Cashback programme when it was launched, and my article also drew its fair number of skeptics. In my review, I detailed how to “hack” the scheme to get maximum benefit out of it. However, the bank officers sang a different tune to those who had read my post and wanted to sign up.

The original review post:

One of the responses that came after my review went live:

 And the aftermath.

I’m not sure why the bank officer gave inaccurate information, but anyway, it does pay to double check before you strike off a good deal especially when it comes to your money.

Because this inaccuracy has happened more than once, I just wanted to put it out here once and for all that I check my facts very carefully before I post, especially when it is a collaboration post with the brand. Thus, you can be rest assured that my information / recommended “lifehack” is most likely to be accurate, because I’ve already done the digging on your behalf prior to posting the review.

Of course, if I’ve truly gotten my facts wrong, I’m always more than happy to make the amendments. Please, highlight them to me if you spot any! After all, we’re all responsible in keeping each other accountable.

I understand that it is hard to trust many social media influencers these days, what with so many exposés – such as how the UOB Krisflyer campaign (influencers) reeked of dishonesty, the Beautiful Teeth Whitening kit (here and here), and of course the Gushcloud exposé by Xiaxue.

Not all of us rely on sponsored posts for a living. Some of us are actually more discerning and value the trust you’ve placed in us, and we’re not going to break that just because of a short-term sponsorship! That’s just not my style, and I’m sure I speak for many of the financial bloggers here who operate the same way.

So all in all, please continue to question and do your own due diligence, but you can trust my reviews (haha!). Do also continue sharing such good deals with me, because I wouldn’t have found out about DBS BYOB if it weren’t for you awesome readers who had raised it to my attention.

To greater lobangs and wealth!

With love,
Budget Babe

Get 4% p.a. interest with DBS Be Your Own Boss (BYOB)!

Looking for a savings account that doesn’t require you to jump through too many hoops for higher interest? If you struggle to meet the $500 monthly spend requirement on your credit card, there’s a new product on the market that you might want to consider.

A few readers recently alerted me to DBS’ newest promotion – the Be Your Own Boss (BYOB) savings initiative – and asked me what I thought about it. Nothing gets my attention like another high-yield saving account, so I reached out to DBS and dug out more information. Here’s my take!

The premise is quite simple: DBS BYOB encourages you to pay yourself first when you get your paycheck each month. This is pretty much in line with what I’ve been preaching since my very first post in 2014 (read: how I saved $20,000 in a year), so it gets a thumbs up from Budget Babe.

DBS calls this method akin to saving like a boss. At 4% per annum, that’s a pretty solid interest rate, and one that currently beats all the other high-yield saving accounts I’ve previously reviewed.

What I used to do, before anything like BYOB was available, was to open up separate bank accounts for my savings and expenses. My paycheck went directly into my savings account, and I would manually transfer a fixed sum to serve as my “pocket money” for the month into my expenses account. For those of you who are lazy to track your daily expenses, this is a effortless way to stay disciplined and within a budget.

DBS makes it easier for you by automating this step. Set a figure sum to be automatically transferred to your POSB Save As Your Earn (SAYE) account every month and try to resist the temptation to withdraw money from your SAYE account.

Next, use your DBS / POSB credit or debit card to make at least 5 transactions monthly. Unlike many of the other saving accounts which require you to spend at least $500 on your credit card in order to earn bonus interest, there’s no such requirement here as you could technically make as little as 5 x $1 transactions just to qualify! Need some ideas?
  •        Grab / Uber payments
  •        Grocery shopping / buying NTUC vouchers
  •        Watching a movie (my favourite! DBS Mastercard also gives you discounted prices at Cathay)
  •        Eating or drinking out
  •        Shopping, whether at physical retail shops or online

For anyone who

  •        Spends less than $500 on your credit card in a month and / or
  •        Earns less than $2,000 a month,

this would be the best account in the market with the highest interest rates.

I’ve compared against the other high-yielding savings accounts in Singapore and none offers such a high interest rate with such low requirements at the moment. If you know of any better deal, please jio me!

For the higher income-earners who can afford to park aside $3000 of savings every month but still don’t spend enough to consistently hit $500 on your credit card, you can also take advantage of this promotion to get even higher interest than your existing <2% p.a. on the other banks’ schemes.

What’s the catch? Well, you’ll have to be a working adult of between 18 – 30 years old with no existing salary crediting arrangement with DBS/POSB between Sept 2016 – Feb 2017. For those of you who are older, you might want to look elsewhere…

Here’s what I recommend you to do in order to maximise the bonus interest of 2+2% p.a. without too much effort:

  1. Register for the Be Your Own Boss initiative here.
     a.    Get $88 cash gift if you do this before 30 September!

    1. GIRO credit your monthly salary into a DBS/POSB savings account.
    2. Open your SAYE account online here, and select the salary crediting account as the debit account to automate your monthly savings amount between $50 – $3,000.
       a.    Choose your preferred date for the transfer between the 1st – 25th day of your salary credit.

    3. Leave your SAYE account untouched.
    4. Use your DBS/POSB Credit or Debit card on at least 5 transactions a month.
        a.    For the best debit card, I recommend the DBS Visa Debit Card which gives you 5% cashback on your Visa payWave purchases (min. 5 transactions a month).  
      b. You 
      can use your card for Grab / Uber rides, or grocery shopping, or at the movies, or offer to pay the bill first when you’re eating out with your friends.

    Remember to get this done before 31 September 2017 to enjoy the bonus cash gift!

    Before you sign up, you might also want to read about the BYOB promo, its terms and conditions (I’ve highlighted the more pertinent ones in this post), the bonus interest illustration and the SAYE account.

    Disclaimer: This article is written in collaboration with DBS (after a reader alerted me to BYOB, which was how I came to know about the product). All opinions are of my own.

    REITS Investing 101: Understanding the different types of REITs

    For the dividend investor, real estate investment trusts (REITs) have been extremely popular over the last decade for their, giving both capital and dividend gains to investors who hold them.

    Photo credits: Seedly

     But before you jump onto the REIT bandwagon, you need to first understand what the different types of REITs are and which you prefer to invest in.

    Retail REITs

    One advantage of retail REITs is that for most investors, it is easy for you to do your scuttlebug due diligence by simply going to their malls. Take some time to observe the location, mall architecture, tenant mix and type of shoppers. With such information, you can obtain a first-hand idea of the earning power of that mall, unlike other REITs where observing the property from within can be difficult or even prohibited.

    “A hallmark of a vibrant retail REIT is one whose management is proactive in organizing events, holding competitions and actively engaging people to come into their malls. Suntec REIT (T82U.SI) is an excellent example; the REIT holds multiple entertainment events, invites celebrities to meet and greet with fans, hold competitions, host international conferences, and organize sale bazaar fairs and travel roadshows to continue to make their shopping malls lively.”

    Ideally, you’ll want to invest in retail REITs that own malls and shopping centres which consistently draw in the crowds and have the potential to continuously revise rental rates upwards.

    Healthcare REITs

    Hospitals and nursing homes are underlying assets of healthcare REITs. The master lessee of these properties (the main tenant who rents the entire hospital) usually takes care of all property operating expenses, taxes and insurance of the property.

    The leases of healthcare assets are generally long term, usually longer than ten years. For instance, National Health Investors Inc. (NYSE: NHI) generally sign 15-year leases on each of their portfolio assets.

    Be it for small accidents or major emergencies, hospitals and healthcare offices will always be in demand and are fairly recession-proof. This is why healthcare REITs are often trading at a premium and continue to show a solid and steady return on investment even during a recession.

    If you’re thinking about investing in overseas healthcare REITs, be sure to ask yourself these two questions before investing: Does this overseas healthcare REIT have a track record of managing healthcare assets in a cash-flow positive manner? Does the REIT have a reputable parent?

    Quantitative observation-wise, look at the “Rent over EBITA” ratio of the hospital operator. This is the total rental divided by earnings before interest, taxes, depreciation and amortization. It’ll show you how much of its cash generated goes towards paying the rental owed to the REIT (the lower the ratio, the better).

    “Many unitholders do not have the financial capability and time to do due diligence on an overseas hospital asset. However, one can simply use Google Maps and observe where the hospital is located. Is it easily accessible? Is it in or near a major city or dense population base? Are there many other hospitals around in proximity?”

    Industrial REITs

    Business parks, flatted factories, show houses and warehouses are often categorized as industrial REITs, which offer higher yields relative to other REIT classes (but also with risk).

    Smart investors tend to pick industrial properties that are adaptive and well-equipped to serve big-business clients. Easy access to wide roads or highways (for logistic purposes), built-in high floor-loading capabilities, high ceiling heights and wide column spans are some examples of highly desired industrial assets for big companies.

    It is important to also look at the tenants as you will want to find large and reputable tenants. Otherwise, no matter how long the contracted lease term is, it is of no value to the unitholder. Generally, industrial REITs who have a 60% or higher exposure to reputable MNCs are deemed to be considerably “safer” to invest in.

    Hospitality REITs (includes serviced residences)

    Hospitality REITs are usually one of the most vulnerable as they are easily affected by external factors such as spread of diseases, terror attacks, economic recessions and layoffs, etc. In light of this, some hospitality REITs do negotiate a master lease agreement with a hotel operator which provides for a minimum fixed revenue amount. An example is OUE Hospitality Trust (SGX: SK7), which pledges a minimum yield of 4.5% simply due to the master lease agreement they’ve contracted with their hotels.

    Another real threat is the rising popularity of Airbnb, which is an online platform allowing people to list and rent their own homes and apartments to travellers. This has had an adverse impact on hotels, and in a recent study conducted by HVS, hotels lost more than $400 million in direct revenues per year to Airbnb in 2015.

    Unlike other REITs who undergo renovations and AEI (asset enhancement initiatives) to upgrade themselves for higher future DPU, hospitality REITs have to undertake enhancements even if they’re not always yield-accretive, simply because they need to continuously keep up with appearances and standards.

    The key metric to determine the earnings potential of a hotel is to calculate the revenue per available room, or “RevPAR” – the average daily rate (ADR) multipled by the average occupancy rate (AOR). The higher the RevPar, the better. Lower RevPars generally indicate that the hotel has many rooms under-utilised or even left empty for significant periods of time, which is not ideal.

    “An investor looking to take advantage of an upcoming tourism boom in a country should go for hospitality REITs that have negotiated a larger proportion of their lease structure on the variable side. Vice versa, an investor looking for more stability in the sector should go for hospitality REITs with a higher fixed portion in their lease structure.”

    Office REITs

    A good office REIT will usually have their office buildings located in notable business areas that are easily accessible by public transport and cars. Given the high skyscrapers and swanky exterior, many investors are drawn to the idea of investing in REITs that collect rental from reputable MNCs, financial institutions and other corporations.

    However, what many people do not realize is that office REITs are actually highly cyclical and can be more sensitive to economic headwinds than their retail REIT counterparts. For instance, during the great recession from 2008 – 2011, many companies consolidated their branches and halted expansion plans. This led to a severe oversupply of rentable office space, causing all NYSE-listed office REITs’ unit prices to plummet. When the economy recovered after, occupancy rates then rose back to the 90% range again, which led to a rise in their office REITs’ unit prices.

    “Look for office REITs with management who are focused on tenant retention as well as tenant attraction, with the desire to maintain a long and healthy lease expiry profile which will provide sustainable returns to unitholders like yourself over the long run.”

    Given the cyclical nature of office REITs, it is important to recognize the stage of the economic cycle in which you’re investing. Do not make the mistake of being seduced by the high rental income achieved during strong market periods. It pays to think like a contrarian.

    In summary, the industrial, hospitality and office REITs are inherently more risky than other REITs due to their assets’ sensitivity to economic headwinds. The silver lining, though, is that such volatility can offer gutsy investors the opportunity to buy these REITs at a cheaper price and be duly rewarded during market upturns.

    Disclaimer: This informative article was written in collaboration with Ivan Ho, author of the Investing in REITs masterclass. If you’re interested to learn more about REITs and how you can develop a new source of passive income from investing in them, click here for a discount on the above REITs masterclass!