What Are The Cons Of Investing In REITs In Malaysia?

Category: Investment,Property

Having a Real Estate Investment Trust (REIT) in your portfolio is an attractive alternative investment option as it’s a great way to receive a steady stream of cash in the form of both capital gains and dividends. We’ve outlined this point in the first part of our two-part REIT series.

What is REIT?

REIT is an investment vehicle that pools a group of investors’ money together in a collective investment scheme and invests it in a portfolio of diversified real estates assets such as shopping malls, offices, hotels or serviced apartments.

Since it was first introduced in Malaysia in 1989, REITs have allowed small-time investors to acquire and own a small portion of an otherwise expensive piece of real estate.

However, like any other type of investment, REITs carry their own set of risks. For instance, since REITs are traded like a stock, their share prices depend heavily on the broader stock market and the value of the property market.

Read on to find out what these risks are: 

how-to-invest-in-reitNot a fan of paying withholding tax? Maybe REITs are not for you. 

1. You still have to pay withholding tax

Although there are some clear tax benefits to REITs, unitholders are still liable to tax on the distribution of income and so they are taxed in the year of assessment the distribution is received — not the financial year of the REITs.

The government currently imposes a 10% withholding tax on REIT dividends to local and non-resident individual investors; investors usually consist of Malaysians, foreigners, individuals, companies or collective investment vehicles.

Related: #InvestInsights: What Should You Invest in During a Recession? An Expert Weighs In

Since 2009, the tax for the REIT dividend is as follows:

EntityStatusTax TypeTax Rate (%)
CompanyResidentCorporate Tax25
Non-ResidentWithholding Tax25
Foreign Institutional Investor Withholding Tax10
IndividualResidentWithholding Tax10
Non-ResidentWithholding Tax10

Cons-Of-Investing-In-REIT-In-MalaysiaYou may not get to have a say in the day-to-day management of your REIT investment. The flip side: if you enjoy sitting back and letting the experts do the work for you, then REIT is a great fit!

2. No real authority or involvement over the management aspects

Similar to a robo-advisor, an investor does not have full control over the management of their stock because the investment is fully managed by the REIT company.

Therefore, investors have no real say and are not involved in any decision-making regarding the property in question.

If you want to be able to have full control over your property investment, investing in traditional property gives you that liberty and freedom.

types-of-reit-in-MalaysiaThere’s no guarantee that you’ll get good returns with REIT. But to be fair, this concept applies to all forms of investments.

Related: 10 Things Successful Investors Don’t Do

3. No guaranteed returns

This applies to all investments, actually. Though investing in REITs provides consistent dividends, its actual returns still depend on the performance of the property market.

Due to the COVID-19 pandemic, many malls and offices may have had to shut down their premises due to reported cases or because of lockdown measures — this could lead to a potential decrease in shopper traffic and tenancy, which could then impact the price of a REIT.

Related: Here Are 7 Smart Ways To Invest And Grow RM10,000

Types of REITs – A list of all 18 Malaysian REITs which are listed on Bursa Malaysia

Real Estate Investment Trust (REIT)PortfolioREITs ManagerStock Short NameStock CodeWebsite
Amanah Harta Tanah PNBRetail, OfficePelaburan Hartanah Nasional Berhad (PHNB)AHP4952http://www.ahp.com.my/
Al-`Aqar Healthcare REITHospital, Nursing College, HotelDamansara REIT Managers Sdn BhdALAQAR5116http://www.alaqar.com.my/
Al-Salam REITCommercial Retail, Office, Industrial PurposesDamansara Reit Managers Sdn BhdALSREIT5269http://www.alsalamreit.com.my/
AmFirst REITOffice, Retail, HotelAm ARA REIT Managers Sdn BhdAMFIRST5120http://www.alaqar.com.my/
Amanah Raya REITIndustrial, Office, Hotel, Institutions, RetailAmanahRaya Investment Management Sdn BhdARREIT5127http://amanahrayareit.com.my/
Atrium REITIndustrial, Warehouse, OfficeAtrium REIT Managers Sdn BhdATRIUM5130http://www.atriumreit.com.my/
AXIS REITOffice, IndustrialAxis REIT Managers BerhadAXREIT5106http://www.axis-reit.com.my/
Al-Hadharah Boustead REIT *Oil Palm Plantations, Palm Oil MillsBoustead REIT Managers Sdn BhdBSDREIT5124http://www.al-hadharahboustead/
Capitaland Malaysia Mall TrustRetailCapitaMalls Malaysia REIT Management Sdn. BhdCMMT5180https://www.cmmt.com.my/
Hektar REITRetailHektar Asset Management Sdn BhdHEKTAR5121http://www.hektarreit.com/
IGB REITRetailIGB REIT Management Sdn BhdIGBREIT5227http://www.igbreit.com/
KLCC REITRetail, OfficeKLCC REIT Management Sdn BhdKLCC5235SShttps://www.klcc.com.my/
Pavilion REITRetail, OfficePavilion REIT Management Sdn BhdPAVREIT5212http://www.pavilion-reit.com/
Quill Capita TrustCommercial, Carparks, Office, IndustrialQuill Capita Management Sdn BhdQCAPITA5123http://www.qct.com.my/
Sunway REITRetail, Hotel, OfficeSunway REIT Management Sdn BhdSUNREIT5176http://www.sunwayreit.com/
Tower REITOfficeGLM REIT Management Sdn BhdTWRREIT5111http://www.tower-reit.com.my/
UOA REITOfficeUOA Asset Management Sdn BhdUOAREIT5110http://www.uoareit.com.my/
YTL Hospitality REITHotelPintar Projek Sdn BhdYTLREIT5109https://www.ytlhospitalityreit.com/

There are four Shariah-compliant REITs, these investments derive their income from business activities that are Shariah-compliant, and excludes business activities that are considered unethical such as dealings with alcohol, tobacco, gambling and non-halal food products. Source: Bursa Malaysia listing

The four Islamic or Shariah-compliant REITs (i-REITs) in Malaysia:

  1. Al-’Aqar Healthcare Reit (ALAQAR) – hospitals and hotels
  2. Al-Salam REIT (ALSREIT) – offices and factories
  3. AXIS REIT (AXREIT) – warehouses, offices and factories
  4. KLCC Property Holding (KLCC) – offices and shops

How do I invest in a REIT?

If you’ve invested in stocks before then you’ll find that navigating REITs are as easy too, especially because they are listed on our stock exchange, Bursa Malaysia

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