This article was written in collaboration with DollarsAndSense.sg
There’s no question that Singaporeans crave property ownership. Besides the 89% home ownership rate in Singapore, property investors are typically attracted to
- steady price appreciation; and
- regular rental income from their investments.
Despite a spate of property cooling measures that began in 2009, private residential property prices in Singapore have doubled since 2009.
Increasingly Restrictive To Invest In Physical Properties
If high property prices in Singapore do not dissuade investors, at least 12 rounds of property cooling measures since 2009, have made it incrementally harder to buy Singapore properties.
Today, those who invest in a second residential property have to fork out at least 20% of the property price in Additional Buyer’s Stamp Duty (ABSD). This is on top of a base Buyer’s Stamp Duty (BSD) that rises up to 6% for all residential properties. Buying a second residential property worth $1 million may cost you nearly $225,000 in stamp duties (BSD and ABSD) alone. You then have to factor in your down payment and recurring costs. Buyers also need to consider their Loan-to-Value (LTV) Ratio and Total Debt Servicing Ratio (TDSR) when servicing their mortgage.
While this may encourage investors to invest in overseas properties, they are not necessarily more lucrative.
Investors need to keep up with overseas administrative and regulatory compliance. This can include opening an overseas bank account, applying for a home loan, understanding transaction fees and charges, and paying annual taxes and property maintenance. You also need to be prepared to make periodic trips to visit your investment property to ensure it is rented out at a good rate and remains well-maintained.
As a result, Singapore investors are increasingly looking for ways to invest in properties without owning physical property themselves.
#1 Property Development Stocks
Property development companies typically own, develop, lease and/or manage properties. While you can invest in such counters on the Singapore Exchange (SGX), you don’t have to limit your investment world to just locally-listed property developers. Many low-cost stock brokerage platforms provide easy access to the global financial markets today. You can just easily invest in property developers listed in the U.S., Hong Kong, and other global markets.
Investing in property developers can also give you niche or broad exposure to the real estate sector, depending on the company’s property portfolio, business model or geographical footprint.
#2 Real Estate Investment Trusts (REITs)
REITs own physical properties managed by professional property managers. Listed across global stock exchanges, you can invest in REITs the same way you invest in stocks. To be classified as a REIT, such counters have to pay out at least 90% of its taxable income each year. This gives investors greater certainty of receiving regular dividends.
As Singapore is the biggest REIT market in Asia (ex-Japan), investors may have an easier time understanding the REIT market. There are over 40 Singapore REITs on the SGX, with exposure to sectors such as:
- Commercial/Office REITs
- Retail REITs
- Industrial/Logistics REITs
- Hospitality REITs
- Healthcare REITs
- Specialised REITs, such as warehouse properties or data centres
#3 Property-Related Funds
Exchange Traded Funds (ETFs) and unit trusts provide a cost-effective way for smaller investors to gain broad diversification across many different assets with a single investment. The underlying investments within both ETFs and unit trusts can be quite similar (i.e., listed stocks such as property counters and REITs).
ETFs are listed on stock exchanges, and you can buy and sell them similarly to individual stocks. While unit trusts are not listed, they can be just as liquid and easy to buy and sell via platform providers.
#4 Private Equity Real Estate Investments
Several real estate platforms in Singapore enable investors to access private equity real estate investments. Unlike investing in physical real estate on your own, you end up owning fractional shares of such real estate investments. Liquidity for such investments tends to be limited, and we typically cannot freely buy or sell our investments – unlike listed securities and unit trusts.
Such private equity investments in real estate usually have a finite investment horizon spanning up to 5 years. Typically, you will be investing in a single real estate project – and the platforms allow you to choose projects you prefer to gain exposure to.
#5 Real Estate-Backed Loans
When you invest in real estate-backed loans, you essentially provide short-term financing for real estate developments. Such investments work similarly to loans, where borrowers (i.e., the real estate developers) have to pay interest. As an investor, you earn this interest as a return on your investment. Even though real estate serves as collateral for financing a real estate-backed loan, what gives this collateral value depends on the right to enforce a legal charge to liquidate the property and the Loan-To-Value (LTV) ratio. Other important factors for consideration include the borrower’s creditworthiness as well as the type of development and location.
With technology, such expertise can now be outsourced to investment platforms such as BigFundr, an MAS-licensed investment platform that focuses on guaranteed, real estate-backed loans.
How You Can Invest In Real Estate-Backed Loans In Singapore
While real estate-backed loans used to be exclusive to institutional or high-net-worth investors, real estate investment platform, BigFundr, has made such investments accessible to retail investors. Founder and CEO, Quah Kay Beng, who has over 25 years of background in real estate investment and asset management, started BigFundr when he saw the opportunity for retail investors to achieve higher-than-market returns on real estate-backed investments.
BigFundr does this by lending to real estate developers and securitising these loans. This is such that retail investors can invest in these loan notes from as little as S$1,000 and achieve the same returns as someone investing S$200,000.
BigFundr also ensures there are layers of guarantee that investors can fall back on – for both peace of mind, and if investments go south.
Strong Track Record
Since it started operating in October 2021, BigFundr has successfully funded 104 deals worth more than S$156 million with a 0% default rate. These real estate-backed loans have passed stringent credit assessments, not only by the BigFundr team but also by external loan managers and BigFundr’s strategic partner-shareholder, Maxi-Cash*.
First Legal Right To Repayment (In Case Of Default)
BigFundr typically holds the first legal charge on real estate when it lends to developers. This means that BigFundr will be the first to be paid back upon the sale of the property, or in the event of delay or default.
Loan-To-Value (LTV) Capped At 70% Of Real Estate Valuation
Furthermore, BigFundr limits its loans to 70% of real estate valuation. This buffer allows for fluctuations in real estate value, especially if the property has to be liquidated, sometimes prematurely. In such instances, property sale prices may be adversely impacted. In the event of a delay or default on the loan, the LTV ratio also gives BigFundr a buffer from asset devaluation during the sales process.
Personal Guarantee by the Borrower Entity
All loans placed on the BigFundr platform benefit from a personal guarantee by the borrower entity. Hence, if there is any shortfall from the sales proceeds after the property is sold, BigFundr can rely on the personal guarantee to make good on the full principal and interest amount.
Buy-back Provision By Fund Management Companies
On top of this, BigFundr also receives a guarantee from the fund management companies from which they source their deals, to buy back these real estate-backed loans at an agreed upon price and time. This adds another layer of assurance for BigFundr and its investors.
Independent Cash Administrator Ensures Funds Are Used Correctly
An independent cash administrator acts on investors’ behalf to ensure investment funds are never commingled with platform funds. During the lifecycle of an investment, the full investment amount does not flow to the borrowers all at once. Borrowers must hit certain construction milestones before tranches of investments are released directly to contractors. The funds are never given to the developers themselves, ensuring that they are used only for the appropriate reasons, i.e., to fund the development of the real estate project.
These milestones are always verified by a third-party quantity surveyor, and the payment tranches are disbursed by an independent cash administrator.
Maxi-Cash* Guarantee
If the investment turns sour, it will likely lead to a protracted affair for BigFundr to recover all of its investors’ funds.
This is where BigFundr’s investors enjoy one of the biggest assurances – with Maxi-Cash Capital Management Pte Ltd, a wholly owned subsidiary of SGX-listed Aspial Lifestyle Limited, providing a full guarantee. Come what may, both your principal and interest will be paid on time.
Invest In Guaranteed Real Estate-Backed Loans With Above-Market Returns
Even with these layers of guarantee, BigFundr’s investors can enjoy above-market returns. Currently, BigFundr’s latest deals offer up to 6.25% nett interest per annum. You can start investing in bite-sized amounts from as little as S$1,000 on BigFundr’s platform. To ensure you continue earning the latest market return and further mitigate risks on your end, you can also consider investing in multiple investment opportunities on the BigFundr platform rather than putting all your “eggs” or funds in a single investment opportunity.
To learn more about how individual real estate-backed loans work and how funds are used, you can refer to the featured developments on BigFundr’s website.
*Maxi-Cash Capital Management Pte Ltd, a wholly owned subsidiary of Aspial Lifestyle Limited, an SGX-listed company.
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