Properties
December 31, 2014
Robert Kuok – Transmile Group Berhad (Main Market)
December 31, 2014

The REITs segment of Bursa Malaysia are basically counters that are made up of real estate investment trust counters. These are usually made up of companies which are primarily involved in the property and real estate development sectors. Generally, REITs (Real Estate Investment Trust) are tax designation used by a corporation which are investing in the area of real estate and this is done to help them reduce their corporate taxes. The companies would then have to distribute back their taxable income back to the investors usually involving some 90%. Typically, it is very similar to that of mutual funds which are normally practiced with normal stock companies.

In Malaysia, REITs are traded in the Bursa under several counters that include AHP, AMfrist, Atrium, BSdreit, Hktar, Stareit, TWRREIT, UOAreit, Sunreit, QCapita, CMMT, Axreit and ALQAR. These stocks are usually considered a bit more tricky if you are planning to invest in them as compared to other categories hence you will need to rely on, at most times insider news and insights of these counters before buying the shares. Discuss them with other members here about whether it is wise and sound to invest in any counter or provide your experiences for others to learn from here.

What is Real Estate Investment Trust (REITs)?

Real Estate Investment Trust or in short REITs are basically a type of trust fund which usually involves companies pooling money from its investors and shareholders and then using an accumulated amount, invest them into real estate assets which could be any type of property in the real estate sector. As the amount is very high, the fund managers would be able to invest in larger property projects like residential or commercial buildings, industrial or retail lots and any other type of real estate properties. Basically, REITs is a form of passive investment vehicle which will buy real estates which will generate income and it is seen as one of the most stable and consistent income for its unit holders.

 

This is because funds in REITs are channelled into the property market which is known to be one of the most stable sectors and then from there, the profit is generated through the rental generated from the real estates. Current regulations require at least 90% of the income generated through REITs be channelled and distributed back to its unit holders.

 

Under Bursa Malaysia, among some of the largest REITs include Sunway REIT which came with a fund size of 2.78 billion units when it was first listed and at RM0.97 sen. Other REITs traded under Bursa Malaysia include Amanah Raya REIT, AmFirst REIT, Axis REIT, Starhill REIT, UOA REIT, Quill Capita REIT and Atrium REIT and quite obviously, they are commonly property developing parties.

 

Why should you invest in REITs?

Investing in REITs have its advantages where it supposedly could yield a stable and recurrent income as that is the very nature of its profits. Unless there is a crisis in the property market, REITs are considered to be very stable as rental will continue to be imposed and this is one market which is deemed to be more resilient even during an economic downturn. Furthermore, when at least 90% of the income from REITs is distributed back to the unit holders, it provide a stable and consistent benefit that unit holders can enjoy.

Diversification is one of the main attractions of REITs where they are usually invested in different geographical real estate locations and this avoids the ‘putting all eggs in one basket’ mentality. By pooling together a large amount of funds, the REIT managers would be able to buy larger units and more marketable property in different locations which means that it will be more profitable in many ways. It will consequently reduce the negative effects often associated with holding assets from one single location. On top of that, REITs are managed by fund managers which are usually professionals and experts in the property development sector. As mentioned earlier, most REITs are usually managed by companies which are property developers in nature.

When needed, REITs can be sold quite quickly if the fund manager finds or discovers new or better investment opportunities. This is because unlike the conventional real estate ownership which are often difficult to liquidate, REITs are typically more liquid assets. One of the contributing factors to this is because REITs are typically listed and traded units on Bursa Malaysia. Investors of REITs would also enjoy the affordability of this investment because you are basically investing in property without the being the sole owner of the lot. Basically, it is different where you are not required to have a large capital in order to invest. Apart from that, you also need not have to undergo the whole documentation process of agreements, stamp duties or lawyer fees which are imposed in the standard procedures of buying property. Your investment is also well protected and thereby ensuring that they are safe because REITs operating under Bursa Malaysia is governed by the Securities Commission Act 1993, the Guidelines on Real Estate Investment Trusts and the Guidelines on Islamic Real Estate Investment Trusts, which means that your interests are protected.

However, this does not mean that REITs are all profit and no risk because there is bound to be risks in every investment method. Under certain circumstances, the ability of the REITs to make proper distributions could be affected when some real estates do not generate enough or sufficient cash flow or net operating profit. This is particularly so during economic downturns when rentals might be harder to come by.

The total return of REITs are usually subject to the performance of the current property market and hence, although you might enjoy a stable income, it is by no means guaranteed and although not common, if the properties drop in value, the unit price of the REIT might follow suit. As an investor, you have no direct control over the investment decisions, how they are managed and such and as per any other investment methods, the market factors will play an important role of the demand and supply. You will find that the volatility and fluctuations of the market would surely affect the performance of REITs which will also involve its other risk factors.