The Complete Guide to REITs in Malaysia

Real Estate Investment Trust (REIT)

I’m sure most of you have, at some point in your investing journey heard of a REIT. REITs are a type of security that invests in real estate and are often listed publicly on stock exchanges. REITs in Malaysia and around the world receive special tax considerations and usually offer higher dividend yields compared to other companies.

The first REIT was created in the United States back in 1960, giving investors the opportunity to invest in huge real estates. The first REIT formed in Malaysia is Axis REIT all the way back in 2004, a good 44 years after our friends in the USA. From here on out,we will be discussing REITs in Malaysia.

What are REITs?

REITs in Malaysia

REITs are all around us, in fact, one could even say that almost every Malaysian has been in contact with a REIT in one form of another. You’ve surely walked into shopping malls, office buildings, hotels, factories warehouses.  Well, lo and behold! REITs own and manage these properties.

Recall your favorite malls from your younger days: Mid Valley and Sunway Pyramid, they belong to IGB REIT and Sunway REIT respectively and have been solid performers in my Freedom Fund.

When explaining what are REITs to people, I like to compare them to mutual funds. The beauty of a REIT is that it allows small time investors like us to acquire and own a slice of the pie in an otherwise impossibly expensive piece of real estate.

In my humble opinion, REITs are a very underrated security in Malaysia. They are perfect for beginners due to their low risk nature as well as high dividend yield. Further advantages of Malaysian REITs will be discussed below.

How do I invest in REITs in Malaysia?

I know, some of you are wondering would I even bother including this in the article let alone making this a header. You’d be surprised how many times I’m asked this question, most Malaysians aren’t even aware that REITs are listed on our stock exchange. Yes! You can own real estate through Bursa Malaysia.

For all intents and purposes and to make things simple for all, REITs are shares. You buy REITs exactly like how you purchase shares. I hope no one asks me how they can go about buying REITs anymore from now on. If anyone asks, please just direct them to this page.

REITs in Malaysia

Tax Advantages of REITs in Malaysia

The Malaysian government has constantly been introducing tax incentives to promote REITs in the capital market. One huge tax benefit of a REIT is that most income earned by it is exempted from income tax. As long as REITs in Malaysia distributes at least 90% of its current year taxable income, the REIT will not be levied the a 25% income tax. This allows the REIT to distribute its income on a gross basis. With this tax system, most Malaysian REITs (if not all) always distributes at least 90% of its taxable income, coupled with the absence of a 25% income tax, dividend payments from REITs are always expected to be well above other corporations.

However, as REITs are publicly listed companies, investors can range from your average local investors to foreigners and foreign entities. Malaysia’s taxman will be hard-pressed to keeping track on tax payments by all these investors, hence you may notice that REITs charge a withholding tax on their dividends. Although Malaysia’s withholding tax rate is considered one of the lowest in the world, we are still behind a few countries – mainly our neighbour Singapore.

Another huge advantage of Malaysian REITs is the exemption of tax on the moving of properties. When a Malaysian REIT acquires properties, it doesn’t have to fork out for stamp duties, normally fixed at a maximum of 3% of the purchase price. When REITs in Malaysia dispose of their assets, they do not have to pay real properties gain tax (RPGT) as well. Imagine the amount of savings REITs are afforded, I’m sure you can come up with your own calculations.

How many REITs are there in Malaysia?

There are a total of 18 REITs in Malaysia as of October 2016. Of these, I currently own 3 – Axis, IGB and Sunway REIT.

REITs in Malaysia

REITPortfolioStock Short Name
Amanah Harta Tanah PNBRetail, OfficeAHP
Al-Aqar Healthcare REITHealthcare, HotelsALAQAR
Al-Salam REITOffice, IndustrialALSREIT
AmFirst REITOffice, Retail, HotelsAMFIRST
Amanah Raya REITIndustrial, Office, Hotel, RetailARREIT
Atrium REITIndustrial, Warehouse, OfficeATRIUM
Axis REITIndustrial, Office, WarehouseAXREIT
Capital Malls Malaysia TrustRetailCMMT
Hektar REITRetailHEKTAR
IGB REITRetail, HotelsIGBREIT
KLCC REITRetail, OfficeKLCC
Pavillion REITRetail, OfficePAVREIT
Quill Capita TrustCommercial, Carparks, Office, IndustrialQCAPITA
Starhill REITCommercialSTAREIT
Sunway REITRetail, Hotels, OfficeSUNREIT
Tower REITOfficeTWRREIT
UOA REITOfficeUOAREIT
YTL Hospitality REITHotelsYTLREIT

Why Invest in Malaysian REITs?

Let’s compare REITs to other corporations on the stock market as well as physical properties.

1. 90% Distribution = Huge Dividends

As mentioned earlier, in order to take advantage of the tax system, REITs will almost always distribute at least 90% of its earnings. That’s right, 90% of all rentals collected from all those colossal buildings will be distributed to shareholders. The savings on stamp duty and RPGT alone run into the millions, those savings will eventually be transformed into dividends for investors like us.

More often than not, the dividends distributed by REITs in Malaysia will be higher compared to other corporations. Which is why I always see REITs as more of a defensive stock due to it investments in physical properties and its high dividend yield.

2. Diversification

There are so many ways REITs offer diversification for your portfolio. For example, just by investing in Sunway REIT, your funds are already spread out among several properties types and also geographically. Your funds are invested in malls, hotels, offices across several states in Malaysia.

If you were to purchase a physical property by yourself, at most, due to the constraint of time and availability of funds, you’d have 3-4 properties in your portfolio. Which sounds better?

3. Low Initial Investment

With as little as RM1,000 you can add shopping malls, office towers, industrial warehouses and even hotels to your real estate empire. Although I mention RM1K, please note that ideally, you’d want to start off with at least RM3K, with RM7-8K being the most ideal due to brokerage fees. Read more on it here on How to Start Investing.

4. Liquidity

Compared to a physical property, you’re able to buy and sell shares in Malaysian REITs in a few minutes. I cannot emphasize this enough, think of the hassle you have to go through just to sell an apartment unit now. The lawyers, agents, potential buyers, it’ll be at least a few weeks before you’re able to rid yourself of that apartment unit.

Whenever you find yourself in a pickle and you need cash fast, you will realize how important liquidity is. Emergencies aside, liquidity will save you a huge amount of time when disposing of REITs not to mention the fees.

5. Let the Professionals take care of it

Malaysian REITs

Leong Kit May – CEO of Axis REIT (one of my most respected REIT CEO)

Just lay back and let the actual real estate experts handle and manage your properties. Who do you think owners of a RM1 billion shopping mall like Mid Valley and the Gardens will hire to manage their properties? The managers will of course be the very best in the field and have tons of experience. With expertise like that on your side, you leave the acquisitions, the disposals and the management of your properties to true professionals.

Conclusion

I hope I’ve been able to shed some light on REITs in Malaysia. I am not against anyone purchasing a physical property on their own. Instead, one should always make their decisions based one as much information as possible and I believe REITs are a very viable and lucrative option in Malaysia.

REITsPhysical Property
Dividend yield: 5 - 7%Rental yield: 3-5%
LiquidIlliquid
Low transaction costs, doesn't take up timeHigh transaction costs, time consuming
Managed by expertsSelf-managed mostly
Highly diversifiedVery little chance at diversification

Physical properties are so hyped in the recent years because you have every tom, dick and harry bragging about how they earned RM100K or RM1 million by buying and selling properties. Yes, this may be true but why? Well, because you are actually borrowing 90% from the bank to finance that deal, you could earn that same amount with stocks if any banks were crazy enough to lend you that same amount.

However, at the end of the day, REITs are a form of investments and has its own risks. They are susceptible to all forms of market risks and you should conduct your due diligence before making a decision. REITs are a defensive stock and are less volatile compared to other stocks. I love them due to their high dividend yield and REITs will continue to be a big part of my portfolio.

As it has always been my mantra, I say – To each his own. Invest in what you know and what you feel comfortable in. If it is properties, by all means, invest and plough your trade in the property market. However, for the rest of you, please give REITs your consideration the next time you are making an investment decision. I have been advising my clients to invest in REITs for years now and there has been no regrets.

REITs make up a huge proportion of my Freedom Fund and are my dividend cash cows. May they provide for you as they have for me.

What are the REITs you’ve invested in?

Let me know if I’ve missed out anything important on Malaysian REITs. I will be continuously updating this page when I come across any relevant information so don’t forget to subscribe to the site, bookmark this page and check back often.

As always, thank you for reading!

 

Leave a Reply

  1. Boss,

    My second year in REITs. With an increasing price and lowered yield, should I do anything with the 30% capital gain? Long term is one thing but surely it’s not buy and never let go.

    Appreciate your input.

    • Hey J,

      2nd year! =D

      30% gain but what do you think the stock is valued at? Is it overvalued? If so by how much?

      I have stocks that are at a 150% gain which I still hold. And I’m looking to add more even at this price.

      You should determine if the share you own is grossly overvalued, and if you don’t see a long-term future for it, then sure, sell it. If you’re just selling because it is up by 30% then you’re doing it wrong.

      Hope this helps!

  2. Hey,

    I doubt that why IGB reit’s dividend yield was lower than other retail reit? Every time i visit midvalley i’ve saw a lot of people shopping there. Just curious about this.

    • Hey again Jimmy,

      Do you mean IGB REIT’s yield is lower? Well when people like a stock, the price will increase. Subsequently decreasing the dividend yield.
      IGB is in demand. So it is expensive.

      Hope this clarifies. =D

  3. can the witholding tax be claimed in our malaysian return form as the dividend income from reits is tax exempt.

  4. Hi Divvy,

    Thanks for the great post! I would like to know if you have the annual dividend rates for all the REITs in Malaysia since inception? I’m curious to look at the numbers and see how they fared over time. Thank you.

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  6. Hello,
    Is REITs dividend paid monthly?
    How do we calculate the divident payout and charges incurred.
    I’m very interested in this type of investment.
    Thank you

    • Hey Kenny,

      First of all, I hope you understand REITs are shares. They are shares in a company that invests in Real Estate.
      So, like shares, different REITs pay out their dividends at different times. Some pay twice a year, some quarterly. So far, I’ve never seen any that pays every month though.

      Hope this helps. And please, if you have any questions, don’t hesitate.

      Thanks for reading!

    • Hey Leong,

      First of all, if you’re referring to Ms Leong Kit May, she is the CEO of Axis REIT. There are many REITs in Malaysia, she is just one of them. You can try emailing her but I doubt she would respond. XD

      You can instead post your questions here, I’ll be more than happy to help you in any way I can.

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  8. Really interesting article! I’m an expat just started working in Malaysia for a few months, but will definitely stay here for the next 5-7 years. Could I be able to invest in REIT here? Would love your help sir, thank you and happy new year 😀

    • Hey Vinh,

      As far as I know, you can just head to any banks / brokers and talk to them about opening a CDS account. The steps should be relatively similar for locals albeit with a few extra documents required.
      I’m not really sure myself though so please do update us.

      REITs would be a good start to get exposure and diversification in Malaysia’s property market.
      Thanks for reading!

  9. Wow, great article! Wish I had found this earlier. For some reason, I had this silly thought there were only 3 REITs in Malaysia. Hmmmmm….

    Keep up the good work bro!

    • Hey Wong sifu!

      No wonder.. I tried looking it up on my HLB account but couldn’t find anything.
      Got the list through BURSA, might be outdated. They didn’t have YTL REIT listed.

      Thanks for this, will update accordingly!