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Beginner’s Guide to REITs in Malaysia

Real Estate Investment Trust (REIT) is gaining more attention and traction in Malaysia recently but did you know that this form of security investment plan was established back in 2004?

REITs were first introduced to the public in America in the 1960s, but you may consider this form of property investment fairly new to this part of the world. If you are interested in property investment to diversify your portfolio, then REITs are “on-trend” right now for a unique way to invest. Additionally, if you prefer to invest in stocks, then REITs are right up your alley since this type of property investing is predominately done via Bursa Malaysia.

What are REITs?

REIT is established when a company decides to invest in property and intends to earn from rental payments from the real estate assets. For a company to qualify as a Real Estate Investment Trust, there are regulatory requirements that must be met before it can start its journey as a REITs based company. Generally, REITs are commercial properties lots like shops in malls, offices, hotels, hospitals and industrial, to name a few.

REITs are usually managed by an appointed group of professionals in the parent company that owns the real estate asset, and the appointed team would be in charge from looking for renters for the space, to collecting and managing the space to keep the income flowing into the trust. You can gauge how successful a REIT is doing by just visiting the property. For example, if the REIT is based on shop lots in a mall then the success of the REIT can be measured by how many shops are open in the mall. If more than 80% of the mall has occupancy then the REIT is earning the rental income its meant to receive.

It is important to understand that a REIT has operating expenses attached to it; such management fees, maintenance costs and other miscellaneous expenses. These unavoidable costs are classified as management expense ratio (MER), and the lower this ratio is to the net asset value, the better the dividend payout will be for the investor. 

How Can You Invest In REITs

It is relatively easy to invest in REITs in Malaysia, all you would need is CDS account, and you are good to go. Bursa Malaysia is a great place to start looking for shares to purchase for your REIT investment. Bursa will have a comprehensive list of potential REITs that will narrow down the property investment options so it will be easier for you to make a decision on which company’s shares to purchase.

There are other investment avenues that is worth considering when searching for REITs like MalaysiaStock.Biz or you can also opt to just Google search the company’s name you are interested in investing. A company’s website should general showcase their portfolio, investor reports and other pertinent information that you would need to make an investment decision. Another alternative would be to observe commercial businesses around you, and you will begin to notice if the property is filled with tenants with low turnover rate or vice versa. This is also another indicator of the REITs’ performance.

Bursa Malaysia is a great place to start looking for shares to purchase for your REIT investment. Bursa will have a comprehensive list of potential REITs that will narrow down the property investment options so it will be easier for you to make a decision on which company’s shares to purchase.

There are other investment avenues that is worth considering when searching for REITs like MalaysiaStock.Biz or you can also opt to Google search the company’s name you are interested in investing. A company’s website should generally showcase their portfolio, investor reports and other pertinent information that you would need to make an investment decision.

Advantages Of Investing In REITs

1. Tax Advantage

Malaysia’s government has great tax benefits to encourage more investors to invest in REITs. One amazing benefit that has been sanctioned by the government is that a large portion of income that you earn from REITs can be exempted from income tax. The requirement that the REITs need to fulfil in order for the investors to get the tax exemption is for the company to distribute 90% of its current year’s taxable income, and the 25% income tax will not be charged. 

Most Malaysian-based REITs opt to distribute 90% of their taxable income due to this tax benefit given by the government. Therefore, when you take into consideration the exclusion of the 25% income tax, a REITs based divided payout is relatively higher than payouts from other forms of investment. This would mean that 90% of the rental income that is collected by the company in charge of the REITs will be distributed to shareholders. This is a great way to earn passive income, and as a bonus, everything from rental collections to managing tenants will be done by the company. All you need to do is just put your money in the right REIT.

2. Ease of Access

The traditional way of investing in real estate is a rocky journey as it is an investment method that has high risks attached to it. REITs provide a safer and a more secure way for investors to invest in property. The total cost it takes to invest in REITs in Malaysia is a very small fraction of what it would cost to invest in real estate using conventional means. Investors now can diversify their portfolio with property investing in Malaysia with a smaller fraction of the risk attached. REITs are also a great way to own a small piece of prime real estate, and there is a great deal of satisfaction to be experienced from that.

3. Consistent Flow Of Income

Like most investors who prefer to put their money into shares, you can expect a steady dividend income from the rental of your REITs. But of course, this depends on how sound your REITs investments are and if you have the insights of picking the right company to invest in the right time, then the dividend payouts will be a great way to earn a steady flow of income through your investment period.

4. Liquidity

Compared to traditional methods of real estate investing where you physically buy a property and sell or rent it, it takes almost no time at all to invest or change your investment property’s location when you do it with REITs. You do not have to go through the hassle of taking care of a physical piece of property, meeting with lawyers, dealing with tenants and other sorts of expenses when you invest in REITs. Since REITs are a form of shares, you can easily liquidate and sell them if you need to free up your cash flow on a rainy day.



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