Investing in REITs is similar to investing in any other type of stock. As a result, REITs are subject to the same trading, payment, and settlement procedures as other securities. Before you can begin investing, you must first open a trading account and a Central Depository System (CDS) account, which keeps track of your stock purchases and sales.
The Securities Commission (SC) in Malaysia regulates REITs and has released “Guidelines on Real Estate Investment Trusts” under section 377 of the Capital Markets and Services Act 2007. (CSMA).
Step 1: Pick a brokerage firm
Select a suitable brokerage firm from the Bursa Malaysia website. Consider the commission fees charged by the broker, the simplicity with which transactions may be completed, if the broker is Syariah compliant, and how user-friendly the selected online trading platform is.
Step 2: Open a trading account and CDS account
Make an appointment with the broker to open these accounts after you’ve chosen a broker. You will most likely be requested to supply documentation such as copies of your identification and a bank statement. A lesson on how to utilize the online trading platform will be provided by your broker.
Step 3: Put funds into your trading account
It takes a few days to open an account. After your account has been activated, you can begin investing in the online trading platform. Funds might be added dependent on your financial situation.
KLCC REIT
The KLCC REIT, unlike many other REITs, only has three properties in its portfolio, but these are enough to make it Malaysia’s largest REIT by market capitalization. It consists of the PETRONAS Twin Towers, Menara 3 PETRONAS, and Menara ExxonMobil, which are all 100% occupied as of the end of 2020. The retail area of Menara 3 PETRONAS is the only exception, with a good occupancy rate of 93 percent.
Another thing to keep in mind is that, based on the prices on Bursa Malaysia, it is by far the most costly REIT to purchase. This is due to its consistent payouts and occupancy rates, which make it an appealing alternative for investors looking for REITs to invest in.
IGB REIT
The IGB REIT is one of the most well-known Malaysian REITs, with only two shopping malls in its portfolio. These two malls, however, are Mid Valley Megamall and The Gardens Mall in Kuala Lumpur, two of Malaysia’s most well-known shopping destinations.
Mid Valley Megamall has a 99 percent occupancy rate, while The Gardens Mall has a 92 percent occupancy rate, according to its most recent annual report. It’s incredible that they were able to sustain such numbers throughout the Covid-19 outbreak, but it’ll be interesting to see if they can do so with the multiple Movement Control Orders in place.
Sunway REIT
- Sunway Pyramid Mall, Sunway Medical Centre, Sunway Putra Mall, and Sunway University are all notable properties.
It consists of buildings under the Sunway Group across a number of industries, including retail, hospitality, corporate offices, and education, and is another of Malaysia’s most prominent REITs. Despite the pandemic, its retail and office properties have a strong occupancy rate, but the hospitality properties are suffering from travel restrictions imposed by the Movement Control Order.
The Sunway REIT’s diversity could be a critical element for potential investors, as well as a vital mitigator against pandemic-related constraints. It remains to be seen whether lower foot traffic will have a significant impact on the occupancy rates of its retail locations.
Pavilion REIT
Pavilion Mall, Pavilion Tower, Intermark Mall, Da Men Mall, and Elite Pavilion Mall are among the five properties in the Pavilion REIT’s portfolio, which includes some of the most well-known landmarks in the Klang Valley.
With properties in the retail and corporate office sectors – two of Malaysia’s most reliable industries – it’s no surprise that the company’s market capitalisation is currently hovering around RM4 billion, indicating investors’ faith in these evergreen industries. The occupancy rate of most malls is above 80%, according to the company’s latest annual report, with just Da Men Mall lagging behind at 68.9%.
Axis REIT
- Menara Axis, Axis Business Park, Bukit Raja Distribution Centre, and Tesco Bukit Indah are some of the notable sites.
Based on market capitalization, the Axis REIT is one of Malaysia’s largest, with a current value of about RM2.8 billion! It currently has a property portfolio that includes corporate offices, logistics warehousing, manufacturing, and retail facilities located across Peninsular Malaysia.
It’s well-positioned to buffer the effects of the Covid-19 pandemic thanks to its diversification, with dividend payout typically above 5% in previous years and only 4.31 percent in 2020. These optimistic figures are one of the reasons why this is one of Malaysia’s most popular REITs.
YTL Hospitality REIT
- The JW Marriott Hotel Kuala Lumpur, The Ritz-Carlton, and The Majestic Hotel Kuala Lumpur are all notable properties.
The YTL Hospitality REIT, as its name suggests, is in the hospitality industry, with a network of hotels and resorts spread around Malaysia. Investors should be aware that the YTL Hospitality REIT has worldwide exposure because it owns various properties in Niseko, Japan, as well as three Marriott Hotel locations in Australia (Sydney, Brisbane, and Melbourne).
It began buying Australian hospitality properties in 2012, and in 2017, it took over The Majestic Hotel Kuala Lumpur, making it the YTL Hospitality REIT’s eighth property in Malaysia. With the purchase of The Green Leaf Niseko Village in 2018, it expanded into Japan. While the epidemic will hurt REITs focusing on hospitality and tourism in the near term, it could turn out to be a wise investment in the long run if borders are reopened and travelers are able to travel freely.
Capitaland Malaysia Mall Trust REIT
The Capitaland Malaysia Mall Trust REIT is one of the most well-known Malaysian REITs, with only five assets, all of which are shopping malls. Within those five malls, however, there are now 1,146 leases, indicating an occupancy percentage of 85.1 percent at the time of writing.
It also had a healthy foot traffic of 32.4 million in 2020, making it a solid alternative for individuals looking for a REIT with a healthy rental cash flow. It’s another question whether it can retain these levels in the aftermath of the pandemic. When lockdowns are eased and retail returns to normal, this might rebound back in the long run, therefore investors with a higher risk appetite should consider buying shares now while prices are cheap.
How do I choose a REIT in Malaysia?
You can’t just look at dividend yield while looking for the finest REITs to invest in Malaysia. You should consider the quality of the properties a REIT owns, as well as the REIT’s plans to increase its distribution per unit in the future.
Here’s a quick rundown of five key factors to consider when selecting a REIT:
Property yield
The amount of money a REIT can create from a property is known as property yield. The bigger the yield on the property, the better. It demonstrates that the REIT’s buildings can yield more rental income. As an investor, you want a yield that is consistent or increasing.
Cost of debt
The average weighted interest rate a REIT pays on its borrowings is known as the cost of debt. The lower the cost of financing, the less interest a REIT has to pay. Debt expenses are typically varied in different industries. Retail REITs, for example, will have a different financing cost than industrial REITs. As a shareholder, you’ll want to compare a REIT’s cost of debt to others in its industry. The lower the debt interest rate, the better.
Gearing ratio
A REIT’s gearing ratio is computed by dividing its total debt by its total assets. A REIT with a higher debt-to-equity ratio has more debt. REITs in Malaysia are only permitted to borrow up to 50% of their total assets (the limit has been temporarily increased to 60 percent until the end of 2022).
We prefer REITs with a gearing ratio of less than 40% since it allows the REIT to have additional credit capacity in case it needs to borrow to complete an acquisition. A lower gearing ratio indicates that a REIT is more conservative and cautious when it comes to debt deployment for growth.
Price-to-book ratio
The P/B ratio compares the price of a REIT’s stock to its net asset value per share. A P/B greater than 1.0 indicates that the REIT is overvalued in relation to its net assets, whilst a P/B less than 1.0 indicates that the REIT is undervalued.
However, as an investor, you should not base your buy/sell choices on this ratio. Because of the quality of their assets, management team, and track record of making consistent distributions, several REITs may trade persistently above their net asset value. Instead, you may analyze whether a REIT is overvalued or undervalued by comparing it to its historical P/B norms.
Distribution per unit
When it comes to REITs, one of the most common mistakes new investors make is focusing solely on the dividend yield. The higher a REIT’s yield, the more appealing it is. This isn’t always the case, though. Due to a low share price, some REITs trade at high yields because the market finds them unattractive.
Instead, you should consider whether a REIT can regularly increase its distribution per unit (DPU). This is a better indicator of a REIT’s capacity to increase dividends in the long run, resulting in a higher yield-on-cost.
If you want an up-to-date table of these measures for Malaysia REITs, go to Malaysia REIT statistics.
You can also see a video presentation of these five measures with real-life examples here if you want to learn more: 5 Secrets To Investing In REITs For Passive Income
How many REITs are there in Malaysia?
In Malaysia, how many REITs are there? As of October 2016, Malaysia had a total of 18 REITs. I currently possess three of these: Axis, IGB, and Sunway REIT.
Is REIT dividend taxable in Malaysia?
Despite the fact that a REIT is exempt from tax if it distributes at least 90% of its total revenue during the year, the distribution to unit holders will be subject to withholding tax and will be received net of tax. Individuals are subject to a 10% withholding tax. This is a one-time tax, so unit owners do not need to report it on their personal tax returns.
Unitholders of REITs that distribute less than 90% of their total income are taxed.
REITs that distribute less than 90% of their total revenue will be taxed at a rate of 24%. In such circumstances, the REIT’s dividend to individual unit holders will include a portion of the tax credit, which can be used to offset the income tax owed on the REIT’s distribution.
Depending on the amount of income obtained during the year, the individual will be subject to tax at scale rates ranging from 0% to 30%, which they must declare in their yearly income tax filings.
Exempt income received and distributed by the REIT, such as single-tier dividends, certain types of interest, and gains from the sale of investments, will be tax exempt in the hands of unit holders.
On the basis of capital gains, unit holders who sell their units will not be taxed on the sale or redemption of their units.
SM Thanneermalai, managing director of Thannees Tax Consulting Services Sdn Bhd, contributed to this article.
How is REIT dividend calculated in Malaysia?
As previously stated, a REIT’s yield is calculated as a percentage of its current share price divided by its yearly income distributions. Because REITs are dividend stocks with high yields, it’s critical for REIT investors to understand how yields operate.
- If the REIT distributes quarterly dividends, multiply the most recently reported dividend payment by four to get the REIT’s projected payouts over a 12-month period. Multiply by 12 if it is paid monthly.
- Divide this annual dividend rate by the REIT’s current share price.
Let’s take a look at a real-life scenario. Realty Income (NYSE: O), one of my favorite REITs, pays a monthly dividend of $0.2275 per share and trades at $73.04 at the time of writing, so:
- The annual dividend rate is $2.73 per share when the monthly dividend is multiplied by 12.
- When it comes to rounding yields, there is no hard and fast rule, however one decimal place is the most frequent approach to express these values.
- Special dividends, which are one-time payments to shareholders, are paid by some firms. (If a REIT sells a number of properties, for example, it may decide to transfer a portion of the proceeds to shareholders in one lump amount.) These payments are neither predictable or consistent, thus while they constitute income to shareholders, including them while calculating the REIT’s yield is often misleading.)
- Because a REIT’s yield is determined by its share price, one fundamental principle is that the computed yield might change at any time. Lower yields derive from rising share prices, while higher yields result from declining share prices.
- Similarly, REIT share prices are frequently affected by yield. Falling interest rates, for example, cause all investment yields to decline, therefore REIT yields aren’t uncommon to fall when interest rates fall.
- Because REITs frequently increase their dividends, the computed yield may be lower than what shareholders would receive over the next 12 months. Despite this, the yield is determined using the present periodic dividend rate rather than the predicted payouts for the next 12 months.
How much do REIT dividends pay?
REITs, or Real Estate Investment Trusts, are well-known for paying out dividends. Equity REITs have an average dividend yield of roughly 4.3 percent. However, there are a few high-dividend REITs that pay much higher dividends than the average.
A REIT’s dividend yield is determined by its current stock price. That means that even if a REIT pays a very large dividend, it won’t be a viable investment if the price falls dramatically.
When looking for dividend income, it’s crucial to look at more than a REIT’s yield. You’ll want to look at criteria that will tell you how healthy a REIT is and how likely it is to pay you a nice annual dividend year after year.
When investing in a high-income REIT, check sure the dividend yield isn’t too good to be true. There are a few warning signals to look for that could indicate problems ahead.
- Over-leveraged. It’s possible that a REIT pays big dividends because it took on too much debt to buy its assets. If their real estate investment portfolio is overleveraged, they are extremely exposed to real estate market downturns or vacancy rises.
- Payout ratio is high. Because REITs are required to deliver 90% of their taxable income to shareholders, they can offer substantial dividends. However, tax deductions such as depreciation are not included in taxable income. This allows them to maintain some cash on hand. A high-dividend REIT’s high payout ratio may explain why it pays so well. The difficulty is that they don’t have enough liquid money to deal with unanticipated downturns. A REIT with a lower payout ratio will have more cash on hand to buy additional real estate and will have a safety net if the real estate market tanks.
- Revenue is decreasing. For any form of investment, this is a significant red flag. It’s easy to overlook a lousy quarter. A consistent drop in profits is usually something to avoid. They could be investing in depressed locations or property types that are losing favor, lowering their rental income. They could also be selling homes to pay down debt, resulting in lower rental revenue.
How do I choose a REIT?
Before investing in a REIT, as with any other investment, you should do your research. Before making a decision, there are a few clear signals to check for:
Management is number one.
It’s critical to comprehend and know the track record of the managers and their team before investing in a trust or managed pool of assets. Profitability and asset appreciation are inextricably linked to the manager’s ability to choose the best investments and methods. Make sure you understand the management team and their track record before investing in a REIT. Look into how they’re compensated. If it’s based on performance, it’s likely that they’re also looking out for your best interests.
Diversification is number two.
Real estate investment trusts (REITs) are trusts that invest in real estate. Because real estate markets vary by geography and property type, it’s critical that the REIT you choose is well-diversified. If your REIT has a lot of commercial real estate and occupancy rates drop, you’ll have a lot of troubles. Diversification also means that the trust has enough money to undertake future growth projects and leverage itself appropriately for higher returns.
3. Profits
The funds from operations and cash available for payout are the final factors to examine before investing in a REIT. These figures are significant because they reflect the REIT’s overall performance, which translates to money distributed to investors. Make sure you don’t use the REIT’s regular income numbers, as they will include any property depreciation and hence change the numbers. These figures are only useful if you’ve already scrutinized the other two indicators, as it’s possible that the REIT’s returns are abnormally high due to real estate market conditions or management’s investment luck.
Is investing in REIT a good idea?
As a result, in addition to cheap entry levels, REITs offer investors a safe and diversified portfolio with low risk and expert management, providing good returns on investment. REITs will be distinguished not only by their investment in real estate assets, but also by their restricted responsibility for all unitholders.
That’s not all, though. According to the criteria, finished projects must account for 80% of assets, while under-construction projects, equity shares, money market instruments, cash equivalents, and real estate activities account for 20%.
REITs allow investors to put their money into a diverse portfolio of commercial real estate assets. Investors who choose the direct investment path for commercial office spaces invest in a single office building.
Will REITs be able to provide the same returns on investment as’actual’ real estate investments? This is a question that small investors will be asking. No, that is not the case. Certainly, investors expecting for unreasonable profits (>20-30 percent) should go elsewhere. It’s critical to have realistic expectations for REIT returns. After adjusting for the fund management cost, a realistic ROI estimate would be in the range of 7-8 percent each year.
The return on investment (ROI) from REITs will be highly structured, realistic, and risk-averse. Investors who desire a regular income with no risk might consider REITs. Furthermore, REITs can provide investors with two types of income: capital gains from the selling of REIT units and dividend income. REITs will also be a good investment option for investors who want to diversify their portfolio beyond gold and the stock market.
REITs have already been introduced in India, and investors have seen excellent returns. The successful REIT listings in India have piqued investor interest in this new investment vehicle, and we expect more REIT listings to follow soon.
CDS vs. nominee account
You must first open a Central Depository System (CDS) account before you may open a brokerage account with a Malaysian broker. You can trade stocks through your broker if you have a brokerage account. The ownership of Malaysian securities is recorded in a CDS account (i.e. stocks listed on Bursa Malaysia).
You could, for example, have a brokerage account with both Maybank and CIMB and buy Stock A through Maybank and Stock B through CIMB. You are identified as the direct owner of both stocks in your individual CDS account, despite the fact that you purchased two distinct equities through two different brokerages. As a shareholder, you have specific rights as the direct owner, including voting rights and the ability to attend AGMs/EGMs.
Malaysian brokerages will employ trust (nominee) accounts to acquire stocks on your behalf. As a Malaysian, for example, I can purchase Singapore Exchange (SGX) shares through my local brokerage, which will then place the shares in a nominee account for me. I am not the direct owner of the shares in Singapore because I do not have a CDP account (similar to a CDS account in Malaysia). In this situation, I am unable to vote or attend AGMs/EGMs for my Singapore stocks. However, as a shareholder, I will continue to have basic rights such as collecting dividends and the ability to subscribe to rights issues.
Foreigners who have a bank account in Malaysia are eligible to open a CDS account. It might be time-consuming for foreigners to open a bank account. In that instance, a nominee account is likely to be more practical. Nominee account holders may be charged additional fees by brokerage firms for managing dividends and other transactions. It’s a good idea to sort them out before you open one.
You can also learn more about the benefits and drawbacks of using a CDP vs a nominee account.
Market access
This is significant to me because I invest in both local (Bursa Malaysia) and international (SGX) stocks. As a result, I’ll need a brokerage that can handle both domestic and international stock transactions. Aside from Singapore, equities listed in Thailand, Hong Kong, Australia, Canada, and the United States may pique my attention. If you’re exclusively interested in Malaysian equities, though, a brokerage that focuses on the local market will suffice.
If you want to trade overseas stocks, these Singapore-based brokers can help you out because they provide more competitive prices in general. If you are not a Singaporean citizen or resident, a nominee account will be opened in your name. In addition to brokerage and custodian fees, you should be aware of the fees charged by corresponding or intermediary banks whenever you transfer money to your nominee account, as these can be substantial. For example, when you transfer money to FSMOne and Saxo Markets nominee accounts via telegraphic transfer, you would be charged S$20 and S$60, respectively, based on my personal experience.
Types of investment products
In general, the service offerings of all brokerage firms in Malaysia are more or less the same. On the Bursa Malaysia exchange, you can trade ordinary shares, preference shares, warrants, exchange traded funds (ETFs), exchange traded bonds and sukuk (ETBS), business trusts, stapled securities, and real estate investment trusts (REITs). (Here’s a list of the top Malaysian REITs that made money after their initial public offerings.)
Bursa Malaysia Derivatives, which is currently controlled by Bursa Malaysia, is in charge of commodity, stock, and financial derivatives trading, including futures and options.
Role of a stockbroker
Personally, I’m a long-term value investor who buys and collects solid stocks at low prices. What is the significance of this while selecting a stockbroker? Because I believe that deciding on a stockbroker should be preceded by determining your own investment goals and objectives.
A stockbroker’s role, in my opinion, is to assist me in completing the execution of my trades. It is not to provide me stock recommendations or buy/hold/sell suggestions for any stock at any time. This is significant because we must recognize that your stockbroker’s interests may differ from yours. Finally, you want a stockbroker who is focused on your investment goals. If he knows you’re a medium/long-term investor, he shouldn’t phone you with hot ideas that don’t assist you achieve your investing goals.
Offline/online access
I prefer internet access to offline access. It’s simple, convenient, and a lot less expensive. Trading platforms are now structured in such a way that even if you are not an IT expert, you can trade stocks with ease. Making a mistake is more difficult for you.
That being said, if you have any questions regarding any aspects on your brokerage’s trading platform, you may always contact your stockbroker through phone or WhatsApp. The goal is to locate a knowledgeable stockbroker or trade representative. I also prefer if a brokerage firm has a local office so that I can make a quick drive down if necessary.
Brokerage fees
Based on cash trading, the following is a list of Malaysian brokerage firms and their minimum transaction costs for trading Bursa Malaysia shares (non-margin). The amount of cash you deposit in your brokerage account determines the trading limit of these cash accounts. They are frequently less expensive than margin accounts in terms of brokerage fees. Margin finance is, in general, a two-edged sword and a dangerous technique that magnifies both profits and losses.
Can you lose money in a REIT?
- REITs (real estate investment trusts) are common financial entities that pay dividends to their shareholders.
- One disadvantage of non-traded REITs (those that aren’t traded on a stock exchange) is that investors may find it difficult to investigate them.
- Investors find it difficult to sell non-traded REITs because they have low liquidity.
- When interest rates rise, investment capital often flows into bonds, putting publically traded REITs at danger of losing value.
Can you get rich investing in REITs?
There is no such thing as a guaranteed get-rich-quick strategy when it comes to real estate equities (or pretty much any other sort of investment). Sure, some real estate investment trusts (REITs) could double in value by 2021, but they could also swing in the opposite direction.
However, there is a proven way to earn rich slowly by investing in REITs. Purchase REITs that are meant to grow and compound your money over time, then sit back and let them handle the heavy lifting. Realty Income (NYSE: O), Digital Realty Trust (NYSE: DLR), and Vanguard Real Estate ETF are three REIT stocks in particular that are about the closest things you’ll find to guaranteed ways to make rich over time (NYSEMKT: VNQ).
How do I open an ETF account in Malaysia?
You can buy or sell ETFs at any moment during the trading day because they trade like equities. However, you must first open a trading account with a Robo-advisor, a broker, or the Bursa Malaysia stock exchange. For storing ETF units, you should also have a Demat account.
A Demat account (short for “dematerialized account”) is an electronic account for holding financial securities such as stock.
After you’ve done these steps, you can use this account to buy and sell ETFs.
