Top 5 Malaysian REITs to Invest in 2019
Real Estate Investment Trusts, popularly referred to as REITs is a regulated investment vehicle with a particular interest in the vast real estate space. REITs raise funds from investors that they use to develop and sometimes buy real estate properties to be rented, leased, or sold for a profit. Over the years, REITs have proven to be an attractive investment option for both institutional and retail investors looking to stretch their investment portfolio to the lucrative real estate sector.
However, like any other investment, conducting a thorough market analysis before investing is paramount given different REITs operate in different market areas with probable different return on investment. Among the different sub-segments within the broader real estate sector that a REIT may specialize in include; the industrial sector (warehousing, self-storage, etc.), Commercial sector (office buildings, hotel and resorts shopping centers- malls), residential sector (residential apartments, modest and high-end homes, etc.), and timberlands- this is where a company is involved in planting trees for commercial lumbering.
5 REITs opportunities in Malaysia
18 REITs have been listed in Malaysia’s exchange- Bursa Malaysia. A good number of these REITs are doing extremely well. Let’s examine the nation’s top 5 REITs that present a great investment opportunity in 2019:
1. Axis Real Estate Investment Trust
Axis Real Estate Investment Trust has a delightful run in the stock market. Based on its outstanding shares, the company is valued at over MYR 2.12 billion. The company boasts a profitable property portfolio that turns in millions in dividends to investors. According to information on its website, the trust holds over 45 prime properties on behalf of its investors with a total of 9,349,267.40 square feet under their management.
2. MRCB-Quill REIT
With a valuation of MYR 1.16 billion, MRCB-Quill REIT is among the most profitable REITs in Malaysia. For the fiscal year ended December 31, 2018, the company announced a dividend payout of RM 0.0385 per share. The company owns a great deal of real estate property that funds the dividend payout.
3. UOA REIT
UOA REIT’s portfolio includes office spaces that have proven profitable to the company in the long run. Pays lofty dividends to its investors thanks to its ever-growing portfolio. The company’s shares are relatively affordable, making it a decent investment option for both average and large-scale investors.
4. Al-Aqar Healthcare REIT
Al-Aqar Healthcare REIT has a slightly unique specialization. The REIST invests in hospital, nursing, and hotel spaces. The company controls vast square feet of space that it leases and rents to respective tenants. Al-Aqar Healthcare REIT pays dividends averaging 6.35% of the total investment annually.
5. Hektar REIT
Hektar REIT has placed its bets on the Malaysian retail space sub-sector. The plan seems to be working just fine for the REIT considering it pays an annualized return of investment of about 6.35%.
Other safer investment options you should consider include the country’s leading REITs. The downside to investing in big companies is that their shares are expensive and give a lower return on investment. Like in the conventional stock market, the speculative stock is always more profitable, although they can be riskier.
The Rise of REITs
Over the years, REITs have gained prominence among investors leading to their mushrooming. Among the benefits of investing in real estate through REITs first is affordability. As you might have noticed from your independent research, real estate is a costly investment, especially if you are bankrolling the entire project yourself. Through REITs, investor pool in funds to finance real estate ventures that would otherwise be expensive for individual investors to finance on their own. The beauty with the REITs plan is that the company pays 90% of its taxable income to investors as dividends.
Secondly, investing in publicly traded REITs enhances the liquidity of your investment. Through the trading platform, one can sell off his/her shares with the utmost ease. This is much effective compared to selling a real estate property to recoup one’s cash. Also investing in REITs gives you a continuous dividend stream unless you decide to liquidate your shares. Another upside is that your investment will be under the management of professionals whose duty is to ensure investors get value for their money.
Gloomy property market conditions
REITs’ were taken through a roller-coaster experience last year. Unfortunately, the real estate market stagnation in Malaysia has persisted to 2019. The unpredictable market conditions appear to be a common wave sweeping through the region. Singapore, for instance, was forced to instigate some cooling measures mid-last year to curb the increasing housing prices in the country. Singapore’s government feared that speculative trends might create a bubble that could sink the entire industry at worst.
The Malaysian crisis is a little different. There’s no meaningful movement in the market. This has created an oversupply of properties that have subsequently driven prices down. Reportedly, as of 2018, there was an oversupply of 171,000 luxury houses priced between RM 300,000 and RM 500,000.
Analysts fear that the stagnation might persist through the next 1 to 2 years before a meaningful recovery is witnessed. However, the industrial sub-sector continues to thrive thanks to the growing logistics and warehousing businesses that have created an overwhelming demand for storage space. Retail properties also have spectacular run-particularly shopping malls. Occupancy rates are impressive, seemingly undeterred by the persisting slow market conditions.
As observed by Thong Pak Leng, research analysts with the AmBank, specific companies in the retail subsector are enjoying an ample demand. “This is demonstrated by REITs under our coverage, namely Pavilion REIT and Sunway REIT, where both have high occupancy rates in their shopping malls. The high occupancy rates are also due to strong management and brand names of the REITs, and shopping complexes are becoming a one-stop centers for Malaysian lifestyle, providing food and beverages and entertainment.”- Thong.
Although Singapore’s crisis (that has since been partly resolved with the cooling measures) appears to be a bit different, however, it still highlights the fragile market conditions experienced in the region. Viewed differently, the slow market conditions could be a signal to buy property when prices are low before they soar in the coming years.