Property Malaysia

We briefly mentioned about REIT in two earlier postings, one on their expected returns, and another on the expected launch of YTL’s Starhill REITs.

So, what exactly is a REIT?

Well in short, all you need to know it’s a unit trust of a company that deals primarily in properties. That’s the important thing to know. If you really want the text-book definition:

“A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.”

For serious reading, the best place to start is the Securities Commission’s “Guidelines on REITs”. Previously, it was known as ‘property trusts’ and was changed to a more global (not ‘glocal’) term since the Budget 2004.

If you read the Guidelines, you’ll find that there are a stringent requirements to be listed as a REITs, and they receive special tax considerations, and typically offer investors high yields as well as a highly liquid method of investing in real estate. The lure of REITs is that most people don’t have money to invest in properties (which is highly illiquid), so REITs offer a fantastic opportunity for people to put in a small amount in developers they can trust to grab a piece of the property pie. That is the beauty and main advantage of trust funds. But don’t forget the charges.

Experts tout a return of 6-8% based of performances in Singapore and Australia, but buyers need to carefully study the underlying company and prospectus before committing any money. So far Axis-REIT has been launched to good response, a few more will follow soon, like YTL, GuocoLand (M) Bhd, Meda Inc Bhd and Tradewinds Corp Bhd.

According to the
Asia Hedge Fund Association,

The Malaysian REITs market is relatively untapped with enormous growth potential. The government is encouraging more property developers, owners and investors to look beyond the quality of properties injected into REITs. The valuation of the properties is essential to gain a higher yield. The key success factor of REITs is the ability of an asset manager to create higher value and income stream for real estate portfolio. The government is also taking measures to boost the REIT industry as seen with the recent announcement on new tax incentives and property players, developers and investors should grasp these opportunities to invest.

For further reading, please check out these excellent articles, which are unfortunately, not written by us.

What Kind of Asset Is a REIT Stock?

Basic Valuation of a Real Estate Investment Trust

Outlook of REITs in Malaysia