Foreign Investors More Keen On Malaysian Reits

Source : The Business Times, January 23, 2008

They're grabbing stocks that seem undervalued

Since the listing of the first real estate investment trust (Reit), Axis Reit, in August 2005, Malaysian Reits have grown steadily. An increasing number of Reits of different asset classes are being listed on Bursa Malaysia each year, says a StarBiz report.

Foreign institutional investors who have not seriously considered Malaysia as a preferred investment destination for Reits are now taking a second look at this option.

Greater foreign interest in Malaysian Reits comes as a result of the infrastructure developments taking place in major cities across the country, especially in the Klang Valley and the Iskandar Development Region in Johor.

Kurnia Insurans Bhd chief investment officer Pankaj Kumar, who manages funds of about US$460m, told the paper that foreign institutions were generally more keen than locals to invest in Malaysian Reits, despite their infancy and the asset size of local reits.

'Malaysian Reits may be small compared with Reits in mature economies that are worth billions, but foreign investors are still willing to invest. One of the reasons is that they are more familiar and knowledgeable about Reits,' he told StarBiz.

A local broker said that Malaysian investors were generally not interested in Reits because they had a short-term investment strategy.

'The Reit industry is defensive by nature and the stocks under trusts generally rise slowly in value over time. If managed well, they provide steady returns,' he said.

The broker said that many of the pension funds from developed economies were parked in Reits, with investors taking a medium to long-term view to investment.

'While there were some liberalisation of foreign ownership rules in the property sector, the last Budget did not provide much for Malaysian Reits,' he said.

Another issue was the lack of detailed coverage by analysts on Malaysian Reits, Mr Pankaj added.

A Singapore-based fund manager concurs about the lack of incentives. She said that the tax regime for Malaysian Reits should be more investor-friendly to attract more local and foreign investors into the industry.

'Currently, individuals pay a flat 15 per cent tax while foreign investors pay 20per cent. which is higher than in Hong Kong and Singapore,' said the fund manager. The problem with Malaysian Reits was that they were too small, she added. One way to fast-track the growth of the asset size is to allow Reits to be invested in development projects, subject to a cap in their fund size.