I haven’t been paying much attention to the presence of REITs in Malaysia but because there are now global property and real estate funds being introduced by Unit Trust companies here, perhaps it is the right time for me to see what REITs are all about.
Firstly, what floored me was how to say this strange word. It sounds complicated, doesn’t it? Should it be pronounced as “Right” or “Reet”? My dictionary does not tell me anything but I have been informed that “Reet” is correct. In case you are still confused, REIT rhymes with “Street”.
Okay … now that I have gotten your attention, what exactly is it?
Lesson Two: REIT stands for Real Estate Investment Trust. REITs are set up by companies and their shares are freely traded on the stock market. On Bursa Malaysia, there are already several REITs quoted on the Main Board. And by virtue of REITs being listed securities, they are very liquid and attractive from the investment point of view.
REITs are corporate landlords. They own and manage income-producing real estate like malls, apartments and commercial or industrial properties which can generate a rather predictable and relatively stable return in the form of rental income from the tenants. So, if you own a REIT security, you are the indirect owner of a brick or two of a shopping mall or a commercial building or some of the above income-generating properties.
The profit that a REIT makes is what is left of this rental income after paying off its property managers, workers and other debts and expenses. This profit is generally exempted from corporate tax and a substantial portion of it will go back to the investors as dividends. This is one of the attractions of a REIT investment.
The REIT market itself in Malaysia is quite small and besides, why put all your REITs in one basket? This is why some Unit Trust companies are now launching global property and real estate funds that pool your money to invest in overseas REITs. Their portfolios include REIT markets in the United States, Europe and the Asia-Pacific. So, a person that puts his money in a global Unit Trust fund that invests exclusively in REITs are actually owning small pieces of properties around the world.
If you are a property investor, this is diversification at work. Although you do not own property in the real physical sense, you as an investor own small parts of several real estate properties around the world.
Are you diversified? If not, maybe it is about time too that you convert part of your Unit Trust portfolio into the REIT market. Although there are always risks involved with any investment, funds that invest in global REITs look to be more stable in the long run. Certainly will be worth the time to study deeper into this new type of security.
Here are some good sources of information about REITs:
http://www.investopedia.com/terms/r/reit.asp
http://www.forbes.com/finance/2005/02/14/cz_sf_0214reits.html
http://biz.thestar.com.my/news/story.asp?file=/2006/7/18/business/14864861&sec=business
Hi..Mr. Quah,
Just bumped into ur blog when google searching Malaysian REIT related topics. I have recently posted some write-up of REIT at my blog http://veloinvest.blogspot.com/. Appreciate if you can drop by and comment. Have a nice day.
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