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Real-estate investment for frogs: REITs, crowdfunding for properties, and state of Asian + Singapore markets

For our second Singafrog Finances meetup, we had the pleasure to welcome no less than 5 speakers to help us understand investment in real estate:

  • Mowgli Frere of Immocratie, a France-based real-estate crowdfunding platform, where you are invited to back projects starting at €1000, for a duration of 6 to 24 month, and interest (before tax) of 10 to 15%.
  • Noel Neo, Head of Research & Operations at Asia Pacific Real Estate Association, where he works on REITs (real-estate investment trusts)
  • Bruno Kerdoncuff, a long-time French expat in Asia, who lives between Bangkok and Singapore, I wanted him to share his experience as an investor in REITs in particular.
  • Kat Yeo and Benson Koh from SRI Pte Ltd, a Singaporean real estate agency, who shared insights on the difficult Singapore market, and opportunities outside.

A good first view on what types of investment exist can be explained with this simple graph:

Here is a quick summary of the most interesting points of each of these.

Immocratie: fund French real-estate projects alongside developers

The concept of Immocratie is not without reminding us of New Union, the debt-based crowdfunding platform we analysed in the first meetup (and into which I invested in a first project, as you can see in my spreadsheet here).

How does it work? Very simply, Immocratie teams curate real-estate projects, from new buildings to renovation, and open its funding to individual investors, alongside developers. The concept exists because:

  • developers can not take a loan for 100% of the funding need in banks anymore, so they are looking to fund about 20% of new projects through alternative means.
  • developers aims to gain between 50% and 100% of the project once it is finished and sold, so paying 10-15% interest for those 20% funds they still need makes sense
  • for us individual investors, the appeal of high rates of 10-15% is strong, as well as the relative liquidity of the bonds (they usually lock your money in for 6 to 24 months based on the business plan assessment)

I’m a big fan for the moment of those “business” crowdfunding platforms. They allow us to invest starting from a low number (usually $1000 or $5000) for a determined period of time (3 to 24 months), with high rates (5-15%). We are of course rewarded for the risk: the project can go bust, etc, but Immocratie, like New Union, seems to have guarantees from the developer in different forms.

One question that remains unsolved at this stage is how much non-resident (most expats in Singapore will become Singapore tax resident after a while) will be taxed this profit. It comes as a “capital gain” (the format used by Immocratie is a bond, not a rent), so it should be taxed at the Singapore level for capital gains (0%). We’re not sure though so I will try have a tax specialist help us on this one.

Another question was on what difference between a Immocratie project and a SCPI? Mowgli explained that contrary to a SCPI which invests in different projects (as a middleman) and gets rents from it, here, the idea is to buy bond for one unique project, directly in that project (no middleman bar the platform Immocratie itself). At the achievement of the project, the investor gets back the capital + interest.

REITs: get yearly or quarterly returns from investing in multiple real-estate assets

As Noel Neo explained, REITs are a convenient vehicle for individuals to invest in several real-estate assets. A REIT can comprise of retail, industrial, office and other types of properties, including more specialised ones such as healthcare assets (hospitals).

Money-wise, a REIT will give you back a rather high yearly dividend, as a REIT by law needs to distribute to its shareholders at least 90% of their taxable income (or face tax penalties). The income comes mostly from the rents from the assets owned by the REIT and don’t tend to see huge fluctuations.

To be noted, REITs are also publicly listed like stocks, and as such, can be more easily traded for. It means that you can also decide, instead of investing in one REIT only, to invest in a bunch of them through mutual funds. If you’re on these platforms, here is the list of publicly listed REITs in Singapore.

What’s interesting to watch on REITs is the market trends behind, and understand where different countries and cities are positioned on the economic cycle. Noel shared for instance this cyclical view of the main Asian cities when it comes to office space economic performance, which can help to pick a REIT versus another one.

In Singapore for instance, the rental market is pretty ugly for residential and retail at least (flat or decreasing), while being relatively stable in healthcare.

Bruno Kerconduff added that he was looking into specialised REITs such as data-centers REIT, which you can have an overview of here, and an interesting analysis of a mid-cap one, CyrusOne, on another website.

Many expect the REIT market to take a hit with the expected hike in interest rates by the FED, so careful as it might not be the best moment to take action on these.

Singapore and South-East Asian market: where it’s (too) hot and where opportunities are

To conclude an already very lively discussion, Kat Yeo and Benson Koh from SRI shared some insights about the residential markets in the region.

The first news is not so good: for foreigners (and partly, PRs), buying a property in Singapore at the moment is costly (with too much to put in cash as downpayment), and won’t get interesting returns.

The situation is not hard to understand: there’s an oversupply of units (around 20,000 for condos), so even though sale prices remain very high as rich owners use them as money parking lots, rentals are down and won’t get any better on the short term.

Some think the next incline could come in about 8-10 years time, so for foreigners it’s definitely a good time to rent, except if you look for a homestay for your family, in which case fire sales can be a good option.

In a way, the market is sandwiched by several constraints today in Singapore:

  • convenient locations abound, compared to 10 years ago. New MRT lines and stops have popped up, and for the upcoming stations, the increase of price has already been factored in by the market.
  • new units are “new” for a short time, as construction is happening everywhere. Buying a condo now means it will be hard to sell at a good price in the next 5-10 years. But in the same 5-10 years, many new condos will have popped up around your unit, so buyers would likely go for a newer unit first.

So we have to look overseas! Malaysia is a risky bet too for foreigners. Recently, the Malaysian government raised the minimum investment in real-estate from foreigners from MYR250k to MYR1m (about S$330k). It’s still way cheaper than in Singapore, but the problem is that with this “high bar” set, no Malaysian would be likely to buy on the second market, so it will be hard to bet on a capital gain.

Kat and Benson suggests two other types of bets: managed properties such as hotel or serviced apartments, which bring an income, or emerging markets such as Cambodia.

What second market?

Overall, my feeling after this evening is that large investments in real estates, when you buy with the objective of a capital gain, requires a good knowledge of the re-sale potential. Is there a second market for this? One of our participants shared about serviced apartments for seniors in France (for students is also popular). It usually bring a really attractive income, but the second market for re-sale might not be that big.

So as I’ll try to get my PR in the next few years, and as I feel comfortable renting for the time being, I will probably keep investing on shorter term options such as crowdfunding, and put a few REIT funds in my mutual funds mix.

And dream of a cheap vacation house in Bali maybe : ) ?

M

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