What Are The Cons Of Investing In REITs In Malaysia?

CompareHero.my Team

CompareHero.my Team

Last updated 09 November, 2021

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: 

02-3-1Not 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:

Entity Status Tax Type Tax Rate (%)
Company Resident Corporate Tax 25
Non-Resident Withholding Tax 25
Foreign Institutional Investor   Withholding Tax 10
Individual Resident Withholding Tax 10
Non-Resident Withholding Tax 10

03-3-1

You 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.

01-3-2

There’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) Portfolio REITs Manager Stock Short Name Stock Code Website
Amanah Harta Tanah PNB Retail, Office Pelaburan Hartanah Nasional Berhad (PHNB) AHP 4952 http://www.ahp.com.my/
Al-`Aqar Healthcare REIT Hospital, Nursing College, Hotel Damansara REIT Managers Sdn Bhd ALAQAR 5116 http://www.alaqar.com.my/
Al-Salam REIT Commercial Retail, Office, Industrial Purposes Damansara Reit Managers Sdn Bhd ALSREIT 5269 http://www.alsalamreit.com.my/
AmFirst REIT Office, Retail, Hotel Am ARA REIT Managers Sdn Bhd AMFIRST 5120 http://www.alaqar.com.my/
Amanah Raya REIT Industrial, Office, Hotel, Institutions, Retail AmanahRaya Investment Management Sdn Bhd ARREIT 5127 http://amanahrayareit.com.my/
Atrium REIT Industrial, Warehouse, Office Atrium REIT Managers Sdn Bhd ATRIUM 5130 http://www.atriumreit.com.my/
AXIS REIT Office, Industrial Axis REIT Managers Berhad AXREIT 5106 http://www.axis-reit.com.my/
Al-Hadharah Boustead REIT * Oil Palm Plantations, Palm Oil Mills Boustead REIT Managers Sdn Bhd BSDREIT 5124 http://www.al-hadharahboustead/
Capitaland Malaysia Mall Trust Retail CapitaMalls Malaysia REIT Management Sdn. Bhd CMMT 5180 https://www.cmmt.com.my/
Hektar REIT Retail Hektar Asset Management Sdn Bhd HEKTAR 5121 http://www.hektarreit.com/
IGB REIT Retail IGB REIT Management Sdn Bhd IGBREIT 5227 http://www.igbreit.com/
KLCC REIT Retail, Office KLCC REIT Management Sdn Bhd KLCC 5235SS https://www.klcc.com.my/
Pavilion REIT Retail, Office Pavilion REIT Management Sdn Bhd PAVREIT 5212 http://www.pavilion-reit.com/
Quill Capita Trust Commercial, Carparks, Office, Industrial Quill Capita Management Sdn Bhd QCAPITA 5123 http://www.qct.com.my/
Sunway REIT Retail, Hotel, Office Sunway REIT Management Sdn Bhd SUNREIT 5176 http://www.sunwayreit.com/
Tower REIT Office GLM REIT Management Sdn Bhd TWRREIT 5111 http://www.tower-reit.com.my/
UOA REIT Office UOA Asset Management Sdn Bhd UOAREIT 5110 http://www.uoareit.com.my/
YTL Hospitality REIT Hotel Pintar Projek Sdn Bhd YTLREIT 5109 https://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

Interested in this topic? Follow our social media accounts @comparehero.my on Instagram and Facebook to get more investment tips!

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