5 Things I Learned About REITs in Malaysia (From a Bursa Malaysia-Sponsored Workshop)
On 15 April 2017, I attended a full-day REITs Analysis Workshop, part of the Bursa Investor Education Workshop Series where they talk about different investment vehicles and investment strategies. REITs stands for Real Estate Investment Trust. For other Bursa Malaysia-organised events, see here.
It was presented by speaker Chua I-Min from ShareInvestCoach.com, a Singaporean financial planner specialising in fundamental analysis (I’ll explain this term too). I think the speaker did a great job in breaking down all the jargon into digestible information.
All-in-all, I learned loads. Here are 5 things I learned about REITs in Malaysia, because sharing is caring.
#1 – REITs investment is straightforward
REITs investment allows you to profit from commercial properties’ rental income. Commercial property types:
- Mixed (combination of the above, may also include Hospital, Education, Business Space and Plantation)
Each REIT is managed by a Trust, ie a bunch of people who make big decisions for the REIT. Multiple properties managed by the same Trust is common. Rental income comes from:
- Retail shops at malls (from H&M to Guardian);
- Office lots at office buildings;
- Medical, logistical, industrial and educational institutions at whole buildings;
- Hotels at hotel buildings;
- and more, as long as they are commercial (not residential) properties.
It’s quite easy to see good-performing REITs in action. Go to any of their properties and see the tenant occupancy rate. If there are a lot of shops (more than 80% filled) and many people at the building, that’s a good sign.
The process to add REITs in your portfolio is similar to stocks. Get a CDS account and go from there. See #4 for more information.
#2 – REITs from fundamental analysis approach – what’s that?
I really liked the fact that the speaker took the time to explain fundamental analysis versus technical analysis. An investor is either one or the other. Which one do you prefer?
- Fundamental analysis (FA): assess factors that make an investment good or bad; suitable for long-term investing. “I think the property will continue to attract renters and yield a steady passive income because of its proximity to an expanding university.”
- Technical analysis (TA): the type of investment doesn’t matter, the profit potential based on charts does; mainly for short-term trading. “Based on indicators, there is a strong likelihood that the market will correct itself and the price will decrease therefore I will short X”.
Chua said that both FA and TA approach can work, but pick a primary approach because using both can sometimes give you contradicting results and get you stuck in analysis paralysis. My personal preference is FA because TA requires you to be a bit heartless and able to detach emotions completely from your investments. I take severe losses pretty hard – can worry for days about it – so I know TA is not for me. TA is popular among people who play forex – see my Should You Try Them Forex? No-Bullshit Guide for Gen Y article for insight on that.
By taking the FA approach for REITs, the speaker emphasised market forces, like:
- Because e-commerce is growing, REITs that concentrate on retail (ie shopping malls) may lose tenants as they can’t compete with online shops;
- Likewise e-commerce is likely to help push REITs that include logistics industry;
- Booming tourism means that REITs in the hospitality/tourism sector have a good chance of doing well;
- REITs that includes medical industry might do well as Malaysia is set to be an ageing population by 2030;
- And more.
The analysis above are examples, there are more things to take into consideration. There is no one correct answer. They can even be personal opinions, but you get the gist.
#3 – How to select the right REITs in Malaysia
Using simplified fundamental analysis, the speaker focused on three things:
- Dividend Yield – did the REIT yield steady or growing returns in previous years? If yes, that’s a good indicator.
- Growth Potential – the FA part – will the rental demand for the properties increase or decrease in 5 years?
- Loan Related Risk – is the REIT in a financially stable position? Whatever is their asset value, they must have less than 45% in debt. For example, if they manage RM100 million worth of properties, the debt must be less than 45 million (Edit: 45 not 450 mil lol. Thanks for pointing it out Jeffry!). They also must have good interest coverage ratio (more than 3 is good; this part I’m still struggling to calculate).
The chart that was handed out:
Personally, I think that Dividend Yield and Growth Potential parts were easy enough to understand. It’s just looking at one chart then do the market forces assessment. The Loan Related Risk part requires you to read the REITs’ balance sheets, look for the correct numbers and calculate them. If you want to know more detail about the Loan Related Risk part, then google ‘how to calculate debt to asset ratio’ and ‘how to calculate interest coverage ratio’. I still don’t know how to read balance sheets well, so I can’t really expand on this.
Example of a Dividend Yield chart, taken from malaysiastock.biz. This is an example of good-performing, stable REIT:
Note: Ignore the current financial year ie FY17 in this case.
#4 – Where to find information about REITs in Malaysia
- Bursa Marketplace – Go to The Mkt > REITs – Lists all available REITs in Malaysia. Click on each one for more info.
- MalaysiaStock.Biz – Go to Market > REITs and Stock Quote>REITs pages. Another page that gives detailed info on the REITs
- The Complete Guide to REITs in Malaysia by Dividend Magic
- Which CDS Account to open to start investing in REITs – included in this handy stocks guide also by Dividend Magic
- The REITs’ individual websites – Google their names and their websites should pop up. The website should contain reports, types of properties they manage, the people behind the trust, and more.
#5 – Which REITs are considered good
At the end of the workshop, after doing all the groupwork and calculations, Mr Chua invited the 200-odd audience to complete a mini survey on which REITs they think are good buys. Take this info with a pinch of salt: this result is based on a small sample size (only 80+ people responded), based on the data collected as of April 2017, and heavily biased (as the results page were constantly refreshed, there is a possibility that survey-takers simply voted on whatever the rest voted).
The top REITs that the (amateur) audience *thought* might do well, sorted by popularity are:
- Ytlreit/Pavreit (tied)
- KLCC/Mqreit (tied)
Again, take this info skeptically and do own research. There are only 18 REITs as opposed to hundreds of stocks, so there is no excuse not to do own homework.
EDIT: Additional info from a REITs enthusiast – there are only 4 Syariah-compliant REITs: KLCC, Alsreit, Alaqar and Axisreit.
REITs is like the stocks version of properties, so if you like stocks and properties, it might be a good option for you. The bottom line is – if you think the properties is managed properly (good maintenance, etc) and can attract tenants, it has potential. Think from the tenant’s POV – would I rent here if I have a shop/office?
If REITs are not for you, there are other investment options in Malaysia. Read What can you invest with RM1000? A quick guide
Disclaimer: My knowledge on REITs in Malaysia is by no means complete, so I invite you to share what you think of it in the comments section below.
I’ve yet to dip my toes into the investment pool, but I’m really interested to begin with REITs. Glad to come across your article here because I’ve been doing some research into REITs and think they’re a pretty good investment choice, especially for beginners.
I’ve blogged about some things I’ve learned from reading up on Malaysian REITs, maybe somebody else here will find it useful too ^^ (Link in name since the comment doesn’t seem to allow URLs)
Yes that’s my spam bodyguard at work 🙂 Apparently I get around 13 spam mails a day now (or so they tell me), so I have to turn it on. Which means no links can be submitted.
I liked your article, especially the typical structure part! Sharing it to other readers here – http://www.estate123.com/insight/2015/10/why-invest-in-malaysian-reits/
Thanks for coming by!
Hey Suraya – Another great post. “My knowledge on REITs in Malaysia is by no means complete,” but you won’t know the value you brought to a complete newbie like me! Thank you 🙂
Welcome, Jenne from Twitter 😀
With the Fed Res going to have at least twice rate increase this year, REIT with high debts may not be good.
You’re completely right. The speaker told us to re-consider any REITs that has 45% or more in debt.
Thanks for sharing Suraya.
I went to some of Bursa IEWs last year and had a session with Chua as well. It was about FA for beginner.One of the best session I attended (fyi, I had 0 knowledge about investment until last year).
Just wondering… do you plan to share anything from the Bloktex conference? I just got interested in blockchain but was too late to know about the conference. Hope they’ll have it again next year.
You’re welcome, Karima 🙂
Re: blockchain and Bloktex conference. I’m pleasantly surprised by the demand for more information. They do plan to hold it annually, so you’ll get your chance next year. I might do a post on blockchain then 🙂
For bumiputra, if you’re a bit sceptical or have not enough courage to dip your toes into stocks, you can consider investing in Amanah Hartanah Berhad (shariah compliant). Instead of handpicking REIT stocks by your own, you got a fund manager to make the decisions. Just like how ASB, unit trust funds work.
Just to add onto the plausible REITs investment vehicles. 🙂
That’s a really good tip, thanks Nasih! Didn’t know we have this option!
Great write-up! I started Malaysia REITs back at 2014 and the performance/yield is as per my expectation.
But however higher yield across the region tempted me to migrate my portfolio to Singapore REITs recently. Perhaps, you can check them out.
USP: Get paid in SGD dividends. 😉
Don’t you need a SG bank account for that?
Yes you do. But there is a way to open a SG bank account without work permit or even travel to SG! 😉
This SG account opening can’t be found at Maybank MY opening accounts page. It’s somehow hidden and you need to specifically mention S$ iSAVvy Savings Account Application Form for the teller to guide you on the opening process. I did mine at MBB Bandar Utama branch.
After you’ve opened this SG bank acc, next is to open a SG brokerage. I would recommend MBB Kim Eng SG cause less headache to control different bank accounts. MBB SG bank account, MBB KE brokerage.
And proceed to buy SReits. 😀
I didn’t know you can open a SG bank account this way, what a good tip! Thanks for sharing Shin!
But just gonna let you know to do it asap… Cause after the 1MBD issue, SG are pretty careful with MY applications and MIGHT close this account opening method in the near future. No one knows when.
Hi Shin, I’m interested in S-REITs. Can you share your experience on that?
Many local brokers in Malaysia also enable trading of foreign stocks in exchanges like SGX, NYSE, NASDAQ, HKSE. You can fund your Malaysian brokerage account using Malaysian bank accounts to trade selected foreign stocks. The catch is the cost, i.e. higher brokerage and recurrence data or platform fees. Only good for frequent traders/investors.
Thanks for sharing the info!
Interesting Article, Can I know what would the best starting amount to invest on REITs.
Can we know what other charges that we have to consider when investing in REITs ?
It was noted that opening a CDS account costs RM10, how about additional charges by Brokers, can we know details on the charges and how to calculate the charges and how much of percentage our investment has to do before breaking even from the costs and charges ?
How would it be if we like to take out our REIT investment later on
Do REITs have cyclic periods , periods of low and high ? and when would be the best time to buy them ?
DividendMagic can answer these questions better – he’s actually in the game (I still dont own REITs yet). Check out http://dividendmagic.com.my/the-complete-guide-to-reits-in-malaysia/