Exciting Days Ahead For REITs
 
 
THE real estate investment trust (REIT) market will see more exciting developments going forward as new players join the fray.
 
The country’s maiden REIT, Axis-REIT, was listed in August 2005, and there are now nine REITs listed on Bursa Malaysia with a combined asset portfolio worth some RM4.7bil and market capitalisation of more than RM3bil.
 
The spread of the asset portfolios has also widened – from office and industrial property (Axis-REIT) to retail and hotel (Starhill REIT), office buildings (UOA, Tower, Quill Capita, AmFirst REITs), hospital (Al’-Aqar KPJ REIT), retail (Hektar REIT) and plantation (Al-Hadharah Boustead REIT).
 
This year, at least two new REITs – Atrium REIT and AmanahRaya REIT – will add more depth to Malaysia’s REIT (M-REIT) market.
 
Atrium REIT will have three warehouses and a specially built office and factory complex worth a total of RM160mil.
 
AmanahRaya REIT is expected to kick off with eight properties worth RM337mil.
 
The asset portfolio includes two office towers at South City Plaza, Wisma UEP, SEGi College, Permanis’ factory and Wisma Amanah Raya (CIMB Building).
 
The market is also abuzz with talk of some government-linked companies with good portfolios of real estate assets getting into the act.
 
The landscape for REITs looks brighter this year, and investors should be upbeat of the potential for higher returns and capital gain.
 
M-REIT’s dividend yields compare favourably against the Employees Provident Fund’s dividend yield of 5.15%, 10-year government bonds (3.76%), as well as the Kuala Lumpur Composite Index’s equity dividend yield of 3.4%.
 
After deducting the 15% withholding tax for individuals, M-REITs yield 6.66%, and this compares well against the one-year fixed deposit rate of 3.7%.
 
Valuations should improve with expectations of fiscal stimulus driving up rental yields and property prices.
 
The outlook for REITs looks good from the interest rate perspective, aided by the fact that both the global and domestic interest rates have peaked somewhat and may be on a downtrend soon.
 
The rollout of Ninth Malaysia Plan (9MP) projects and rising capital value and rental rates of commercial properties also augur well for the market going forward.
 
The entry of new foreign investors in the local property scene looking to increase their exposure in Malaysian properties, especially investment-grade commercial real estate, is another plus factor for the M-REIT market.
 
They may either invest in the REIT market or through direct acquisition of good grade commercial properties.
 
Most of the foreign funds see good upside potential for Malaysian properties, which are presently undervalued compared with that in the neighbouring countries.
 
Kuala Lumpur’s property prices and rentals are currently one of the lowest compared with other capital cities in South-East Asia, including new markets like Ho Chi Minh City.
 
Strong demand for Grade A office space and the tight supply of prime office space in Kuala Lumpur due to a freeze on new office development (introduced since 1999) is good news for the office sector.
 
The total supply of office space in Kuala Lumpur and Selangor stood at 7.76 million sq m in 492 buildings, accounting for 53.7% of national supply.
 
The occupancy rate of most of the purpose-built office space in Kuala Lumpur is close to 90%.
 
With more multinational companies looking towards Malaysia, mainly Kuala Lumpur and Petaling Jaya, to set up their regional headquarters, the commercial property sector has reason to celebrate.
 
 
 
Source :The Star 17/02/2007 Close Window