Real Estate Investment Trusts (REITs) are businesses or companies that finance or own income-producing real estate across various property sectors. Created by US Congress in 1960, these real estate companies should meet several necessities to qualify as REITs. The majority of REITs work on stock exchanges, and they offer numerous benefits to investors.
REITs allow investors to pool money together and acquire a property or property stock. In Malaysia, a REIT is structured as a trust fund, commonly referred to as a ‘trust’ and a ‘fund’. The purpose of REITs is to allow all individuals to benefit from investing in income-producing real estate. To know more about how REIT investment work in Malaysia, check the complete information in the article below!
REITs in Malaysia
Conventionally, REITs are collective investment schemes in real estate that combine the best features of real estate and trust funds. Take Mid Valley, a shopping mall in Mid Valley City, Kuala Lumpur, Malaysia, for example. This company, which IGB Corporation Berhad developed, has come under IGB REIT on Bursa Malaysia. Therefore, investors can invest in it and enjoy part of its rental and business income earnings without purchasing the entire shopping mall.
If the conventional REITs are not what you are looking for, you can take Islamic REITs as alternatives. Like unit trusts, there are Shariah-compliant REITs, or i-REITs (the Shariah version of the conventional REIT), in Malaysia. Some examples are the Al-Salam REIT (ALSREIT), the Al-‘Aqar Healthcare REIT (ALAQAR), and the AXIS REIT (AXREIT).
Separate from conventional REITs, the income of i-REIT must come from Shariah’s permissible activities. In addition, i-REIT has to adhere to the 20% benchmark as determined by the Shariah Advisory Council (SAC) of SC in case of mixed activities. In Malaysia, tax treatment for either REIT or i-REIT is similar to stamp duty, real property gains tax, and corporate tax.
Benefits of REITs for Investors
As a unit holder, investors enjoy certain fundamental rights, including:
- Rights to collect income and further distributions attributable to the units held.
- Right to receive the fund’s report.
- Right to participate in the termination of the REIT. Investors can do this by receiving a share of all net cash proceeds derived from the realization of the REIT assets after deducting any liabilities based on their proportionate interest in the REIT.
REITs fall under the purview of the Securities Commission (SC)
The SC issued the Guidelines on Real Estate Investment Trusts under s 377 of the Capital Markets and Services Act 2007. The SC of Malaysia defines REIT as “an investment vehicle that proposes to invest at least 50% of its total assets in real estate”.
You can make REIT investments through direct ownership or a single-purpose entity whose principal asset comprises tangible assets. There seems to be an increasing demand for more diversified investment products that can capture the different risk appetites of the investors, given the increase in income and improved affluence of the Malaysian population.
Some REITs are offered to the public at large on Bursa Malaysia
You will need to open up a Central Depository System (CDS) account, and a trading account maintained with a broker. Investing in REITs is similar to trading in stocks. After obtaining a CDS account and a trading account maintained by a broker, you may buy or sell ETFs through your broker, register, or do online trading during trading hours.
REITs investment provides investors with some degree of exposure to the real estate and property market. This asset class diversification allows retail investors, current and potential, to find alternative investment vehicles besides investing in company equity. As an investment instrument REITs, are an investment portfolio with a lower risk profile. (sourced from Bursa Malaysia, Regulation on REITs)