Is REITs overvalued? Deciding whether to invest in REITs or the stock market...?

Nobody can know that really, predictions are not possible.

The U.S. stock market for years was called overpriced, still the bull runs,

as it did over very many decades with some harsh but temporary setbacks.

You could invest (regularly) into stocks, as well into REITs, favorably via world/U.S. passive idexing ETFs and as to Singapore exposure via S-REIT ETFs

Yes, you should definitely invest in REITs.

You might ask if it is better than investing in real estate. Investing in real estate is no new concept, except it’s a pricey one. Real-estate investment as an idea sounds lucrative, but investors find it much too troublesome, especially when they are planning a sale amid a market shift. Real Estate Investment Trust (REIT), on the other hand, has been a major pacifier. Not only does it generate steady income but it also gives investors exposure to capital appreciation over a period of time as the value of the property increases.

Listed below are points to show how REITs help investors:

1. High Yield – REITs generate a higher income ratio since 90% of their taxable income goes out to their shareholders/investors in the form of dividends. This, in turn, increases the yield.
2. Tax Advantage – REITs have a great tax advantage, meaning they are not taxed on the corporate level. This is considering that most of their earnings are directly passed on to their shareholders. However, investors do need to pay taxes on dividend income and capital gains from sales of the REITs.
3. Portfolio Diversification – REITs are a good portfolio diversifier, given their returns have a low correlation to equity stocks and fixed-income investments. Also since rental income and expenses are predictable over the short and long term, REIT share prices are less volatile than equity stocks.
4. Total Return – Not only do long-term leases ensure a continued income flow, but their returns also capture the price appreciation of the underlying REIT properties. And since properties have a high return potential, the top-performing REITs show strong returns and have the ability to outperform even the stock index.
5. Liquidity: Real estate investment is non-liquid. But over a period of time, REITs are expected to become liquid assets, just like mutual funds.

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I have come to the conclusion that P/B is sometimes a tricky indicator, that could be potentially ignored for reits. When I compared Keppel DC (kdc) reit against Mapletree Industrial Reit (mint), Because kdc has a lot of freehold land, it has a higher P/B value. Its not something to compare directly.

I have switched to using estimated dividend yield, net profit margin, roe, revenue growth, gti score and d/e as preferred indicators. Using sgx stockfacts, the dividend yield and net profit margin has to be manually recalcuated to account for new properties, and net profit margin should be reduced for property sales.

At the moment, most reits are at an all time high, and its difficult to recommend buying now. My current consideration (at minimum) is (on unadjusted sgx stockfacts): dividend yield > 5% and less than 8.5%, roe > 7%, gti score > 75, d/e < 55%, revenue growth > 0%.

You will find it leaves very few reits. Do take note of scrip dividends, some may like it, I am undecided for now.

Hi there! In all honesty, your question has been asked by many before you as well. I gave my reply to this question in this post here -- https://seedly.sg/questions/hi-can-anyone-share...

And Seedly who did an entire episode of their Seedly TV just on REITs

https://seedly.sg/questions/topic/seedlytv-ep05

Hope it helps!