THE biggest asset class that an average Malaysian invests in his or her life time is property. This investment is a good hedge against inflation. It is a measure of wealth and inheritance for children.
However, there are few problems that come with buying property for investment, including quick disposal, exposure to interest rates, taxation on income and finding tenants.
“Until 2005, people who wanted to invest in property directly had only these choices. But all that has changed. Today there is a different form of investing directly in property. You can invest in real estate investment trusts (REITs). Units in a REIT represent equity ownership. Basically, you have indirect access to large, stable estate portfolios in a tax-efficient manner,” said Datuk Stewart LaBrooy, executive chairman of AREA Management Sdn Bhd.
If you are interested to invest, it is advisable to look at a REIT that gives you 20 to 30 per cent in annual returns compared to putting your money in a fixed deposit of which interest is three to four per cent.
Historically, REITs have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation, he said.
KLCCP Stapled Group, comprising KLCC Property Holdings Bhd (KLCCP) and KLCC REIT, reported in May a 1.82 per cent increase in its first-quarter net profit to RM183.96 million from RM180.67 million recorded a year earlier, on the back of higher revenue from its investments in office and retail properties.
The group declared total dividends of 8.8 sen a share comprising KLCC REIT’s taxable income distribution of 6.28 sen and KLCC Property’s tax-exempt dividend of 2.52 sen.
KLCC REIT owns Petronas Twin Towers, Menara 3 Petronas and Menara ExxonMobil while KLCCP has stakes in Suria KLCC, Mandarin Oriental Kuala Lumpur and Menara Maxis.
Pavilion REIT, the largest retail-focused REIT in Malaysia, saw a 7.37 per cent increase in net property income for its cumulative six months ended June 30, 2019 to RM192.86 million from RM179.63 million in the same period last year.
Distributable income for the period increased 1.7 per cent to RM133.95 million from RM131.71 million previously, with distribution per unit rising to 4.4 sen from 4.34 sen.
Bursa Malaysia’s REIT Index has grown 9.89 per cent year-to-date.
Affin Hwang Capital senior analyst Isaac Chow, in a recent note, shared that six of the REITs under its coverage have outperformed Bursa’s benchmark index FBM KLCI in four of the past five years.
Chow said moving into the second half of this year, the REITs’ defensive earnings, stellar yields and low correlation to benchmark indices make them a good investment proposition during economic uncertainties.
AmInvestment Bank Research analyst Thong Pak Leng said the research house expects the outlook for retail properties, especially malls, will remain stable in the short to medium term.
In a July note, Thong cited Pavilion REIT and Sunway REIT as both were enjoying high occupancy rates on the back of their strong management and brandnames.
He also said demand for industrial properties would be stable, driven by the logistics and warehousing segments, largely supported by the emergence of e-commerce.
“The preference for logistic warehouses will likely continue to be within the Klang Valley, largely in Shah Alam, where there is a large concentration of manufacturing activities and distribution centres,” said Thong.
The top industrial REITs in Malaysia are Axis REIT and Atrium REIT.
LaBrooy said new industrial parks are providing industrial REITs with much larger assets to purchase, and he expects the long-term outlook to be bright for the sector.
“Industrial REITs have a strong growth story through acquisitions and organic growth. The rapid growth of e-commerce is creating new high value assets that are coming on stream in the next two years.
“Rents have been rising over the past two years for industrial properties. Exciting new mega distribution centres are being built which carry high price tags. Larger new distribution centres will carry sticker prices of RM400 million to RM500 million and provide industrial REITs an opportunity to find scale and liquidity. Yields will be higher at seven per cent and above with long leases and stable revenues,” he said.
LaBrooy said industrial land prices have been climbing, leading to the introduction of new innovative distribution centres.
He expects that demand for new high quality industrial estates will transform the industrial landscape.
However, LaBrooy advised investors to remain cautious about the over-supplied office market.
He said demand could remain soft due to a slowdown in business expansions among companies given a weaker economic outlook.