REIT in Malaysia: what is it and how to invest in it

A real estate investment trust (REIT) allows smaller investors to buy into retail, commercial, and luxury real estate, such as hotels and shopping malls, at reasonable prices. There are many reasons to consider purchasing a real estate investment trust in Malaysia.

What is a real estate investment trust?

Real estate investment trusts (REITs) are stocks in companies that hold and manage commercial real estate and are listed on the Bursa Malaysia stock exchange. Retail, office, farm, industrial, and mixed-use properties are all part of a real estate investment trust. Much like unit trusts, REITs seek to participate in various real estate businesses by pooling the funds of many investors.

Therefore, REIT shareholders receive dividend payments quarterly or semiannually. The main components of the dividend disbursements are rent collected from the properties under the REIT's control, fees for property management, and profits from commercial operations at these properties.

However, REITs also come with risks, such as market fluctuations and economic downturns, which can affect property values and rental income.

Factors that affect the REIT industry

Many external forces influence the real estate market in general and REITs in particular. Staying informed about the latest market information and trends is crucial for making smart investing decisions in this industry.

The following six factors can impact the REIT industry.

• Real estate investment trusts consider the current interest rates carefully. REITs depend on leverage to earn higher revenue. Therefore, when the interest rate in a country changes, the profit gained by investors changes too.
• Real estate investment trusts are sensitive to economic conditions. Due to reduced consumer spending and corporate activity, the demand for commercial properties, including rental income and property values, can decrease during economic downturns.
• The real estate market's ups and downs primarily define REITs' performance. Profit margins in real estate investment trusts are vulnerable to changes in rental yields and property values brought about by market overabundance or downturns.
• Government actions, such as changes to tax legislation, affect the industry. REITs rely on favourable tax policies and a well-defined regulatory environment to attract and retain investors.
• Changes in population, urbanisation, and lifestyle choices can affect demand for various types of properties. For instance, REITs in the healthcare and senior housing industries may see an uptick in demand due to an ageing population.
• Technological disruptions to conventional real estate models can create opportunities for such trusts to improve property management, tenant engagement, and operational efficiencies. For example, logistics and warehouse space have become more in demand due to the growth of online shopping.

Advantages of investing in REITs

This form of investment has several benefits.

• You do not need considerable capital.

REITs are ideal for first-time investors. The minimum investment required to try one is only 100 RM. Consider the Amanah Harta Tanah PNB (AHP) REIT, for instance. One unit is listed on Bursa Malaysia for 0.75 RM, so that's a manageable expense. Bursa Malaysia has set a minimum share purchase of one lot, or 100 units.

• You don't need to worry about diversification of your portfolio.

Real estate investment trusts provide diversification across different industries, allowing investors to hedge against market fluctuations in any sector with a diversified portfolio of office, retail, industrial, and hospitality properties. For example, a portfolio investing in Sunway REIT properties diversifies its bets across different properties and parts of the world.

• There is an easy conversion to cash.

REITs are liquid assets and are listed in Bursa Malaysia. As such, they are a prudent investment option. You can quickly turn your money into cash with liquid assets. You won't have to go through many hoops—simply convert your REIT shares into cash in less than 24 hours. You can also sell units online quickly with a click of a button. Remember, however, that you might be credited depending on how much you sell.

• REITs benefit from favourable tax treatment.

Acquisition and transfer of properties do not incur tax for Malaysian REITs. A REIT in Malaysia is exempt from stamp duties when acquiring properties. When disposing of assets, a REIT does not have to pay the Real Property Gains Tax (RPGT). These two tax breaks help investors and shareholders save money.

Disadvantages of investing in REITs

This type of investment has certain disadvantages.

• There are property market cycles.

The ups and downs of the real estate market determine how well REITs do. Reduced rental yields and property values caused by an oversupply or downturn in the market can affect REITs' profits.

• You might have to pay a withholding tax.

Unlike our Singaporean neighbour, there is a withholding tax for individual unit holders in Malaysian real estate investment trusts. The REIT management must withhold a tax on dividend distributions according to the investor's profile, which depends on whether the investor is a Malaysian or a foreigner, an individual or a company, or a collective investment vehicle. On the other hand, distributions to non-resident non-individuals are subject to a withholding tax of 10% in Singapore.

• There is no guarantee of returns.

An investor's profit depends on the estate market's performance, even if REITs guarantee a constant income. Take Mid Valley as an example. If it performs poorly due to fewer shoppers and tenants, the IGBREIT unit price will fall.

Suppose you feel that the value of a REIT share is declining. In that case, you may always sell it, unlike traditional property investments. You can have difficulty finding a buyer for your property if it doesn't generate much profit or is not in a desirable location.

How to invest in REITs in Malaysia

Buying shares in a real estate investment trust is like buying any stock. So, the same trade, payment, and settlement are required for a REIT.

Therefore, before deciding on the amount you want to invest, you must open trading and CDS accounts. These accounts will record your transactions with the shares.

Follow these basic steps to start the investment.

1. Select a brokerage. You can find out the right brokerage by visiting the Bursa Malaysia website. Choose a broker that best fits your needs.
2. Create a trading account and a CDS account. Please make an appointment to open these accounts with your broker once you've selected one. The standard practice is to request proof of identity and a copy of your most recent bank statement. In addition, your broker will provide you with training on how to navigate the platform for online trading.
3. Add money to your trading account. It takes a couple of days to open an account. You can fund your online trading platform account after it has been activated. Contribute to it according to your financial means.
4. Finally, begin investing. Once your trading account has enough funds, you can use the online trading platform to buy and sell shares on Bursa Malaysia.

Top Malaysian real estate investment trust companies

Sunway REIT, AmanahRaya REIT, and Aqar Healthcare REIT are among Malaysia's fourteen real estate investment trusts. Seven of these firms have received money, with ten receiving Series A+ investments.

Final thoughts

• Real estate investment trust firms offer an affordable entry point into the real estate market, allowing investors to start with minimal capital. They provide investors with a good balance of security, profit, and potential for the country's stock market to flourish.
• REITs diversify investments across various property types, which helps mitigate risks associated with market fluctuations. Additionally, REIT units are highly liquid, allowing investors to convert their holdings into cash through online trading platforms easily.
• Real estate investment trusts are known for their consistent income streams through regular dividend payouts, typically ranging from 5% to 7% annually. Malaysian REITs also enjoy tax exemptions on property acquisitions and disposals, enhancing profitability and distributions to investors.
• Fluctuations in interest rates, macroeconomic conditions investments, property cycle changes, changes in laws, changes in demographics, changes in technology and many other threats should keep investors on their toes when it comes to REITs. Knowing the risks of trust firms' investment will help you choose the right direction in investing.