REIT in Malaysia – An Alternative to Property Investment

Have you ever thought about investing in property but just don’t have the capital to do so? After all, even the most “affordable” low-cost housing can cost upwards of RM 400,000 in Malaysia. However, managing, or partly managing property doesn’t have to be just a dream, this is when REITs in the Malaysian market come in.

What is REIT?

REIT stands for Real Estate Investment Fund. In short, REITs are shares of commercial properties listed on Bursa Malaysia owned by property developers.

A REIT pools investment from multiple parties for the development or management of real estate. Investors in REITs are entitled to dividend payments usually distributed every 3 or 6 months.

Most of the dividends come from rental income, which is basically a given from shopping malls and office towers, so the risk is low!

For example, if you put in a small amount for the maintenance of popular commercial estates like Mid Valley Megamall (IGB REIT), you get to enjoy a portion of its rental and business earnings without needing to purchase the mall!

Why REIT?

90% Distribution

Most income earned by REITs is tax-exempted as long as they distribute 90% of its taxable income. This is where you, the investor, enjoy the fruits of your investment, getting anywhere between 5% to 7% as your returns.

Tax Advantage

Besides that, Malaysian REITs are also excluded from paying tax on the purchase or moving of properties, as well as stamp duties when they acquire new properties or and get rid of old ones.

Lower Volatility

As stated before, the main dividend comes from property rentals, which is less volatile compared to other market types. As long as tenants don’t suddenly vacate the property en masse, dividends won’t fall dramatically.

Hands Off Approach

You also do not have to deal with tenants and manage the properties yourself like you have to if you invested in properties.

Liquidity

With physical properties, to liquidate them into cash takes quite a bit of work. You would need to involve lawyers, real estate agents, and of course potential buyers. With REITs, you can just sell them as you would with any other shares and you get almost instant cash.

How to Invest in Malaysian REITs

REITs are listed in Bursa Malaysia, so the procedure is the same as investing in any shares. First, pick your ideal brokerage firm, to open a trading account and Central Depository System (CDS) to keep track of your purchases.

You will have to submit the relevant documents such as your identification and bank account statements before being given a tutorial on how to use online trading platforms, where you will add your funds.

On the Flip Side…

No Say Over Management

While it is nice that you don’t have to bother yourself in managing the properties in your portfolio, you also do not have a say in major decisions such as the sale of properties.

Returns are Not Guaranteed

While REITs are a lot less volatile than other types of shares, guarantees are still not a given. A great example would be the performances of shopping malls during the 2020 pandemic. A decrease in shopper traffic would probably lead to lower tenancy. The REIT unit price would then go down.

Conclusion

REITs are good alternatives to property investment, especially if you lack a huge capital or investment experience. It is a good source of passive income should you play your cards right. Give it a real thought!