Back in April 2017, I attended a full-day REITs Analysis Workshop organised by Bursa Malaysia. It was part of the Bursa Investor Education Workshop Series where they talk about different investment vehicles and investment strategies.
Here are 5 things I learned about REITs in Malaysia from the workshop that I want to share with you, plus additional info I learned along the way.
#1 – REITs investment in Malaysia: What you should know
REITs stands for Real Estate Investment Trust. The investment allows retail investors, aka you to profit from commercial properties’ rental income.
Commercial properties comes in a few types, including:
- Office;
- Industrial;
- Retail;
- Hotel;
- 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.
As mentioned, REIT investors earn from rental income, which 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.
#2 – Where and how to buy REITs in Malaysia?
You can buy REITs in Malaysia from:
- Bursa Malaysia – Local REITs
- Roboadvisors – Local and international REITs, and
- Online Investment platforms – Local and international REITs
Note: Local REITs means the real estate assets are located in Malaysia. International REITs means the real estate assets are located outside of Malaysia
Here’s how to buy in REITs from each option.
1) How to buy REITs listed in Bursa Malaysia
Here’s the step-by-step way to buy Local REITs listed in Bursa Malaysia:
- Open a CDS account (Skip this if you already have one)(Here is a list of organisations you can open a CDS account from)
- Fund your account
- Select which REITs you’d like to invest in and take note of the price per unit
- Purchase 100 units (or the minimum amount allowed). For example, let’s say 1 unit is RM1, so 100 units is RM100.
- Congrats, you have invested in the REIT 🙂 Repeat the purchase next month, or consistently
There are 20 REITs listed in Bursa Malaysia.
*Note: There are 20 REITs listed in Bursa Malaysia, but only 4 are Syariah-compliant. They are:
- Al-‘Aqar Healthcare REIT
- Axis REIT
- KLCC REIT
- Al-Salam REIT
2) How to buy REITs from Investment Apps
You can buy Local and international REITs from 2 investment apps:
- Wahed Invest (roboadvisor) – offers Syariah-compliant Local REITs,
- Versa Asia‘s Versa REITs (‘digital wealth management app’) – gives you exposure to real estate assets in Singapore, Hong Kong, Malaysia and United States
Here’s how to buy REITs from both platforms.
How to buy Local REITs from Wahed Invest
Here’s the step-by-step process to buy Local REITs from Wahed Invest:
- Open Wahed Invest account (Obligatory referral code: Download app and use code ‘surbin1’ to get FREE RM10 bonus)
- Select Thematic > Local REITs (If you already have existing investment, click Add account in Dashboard)
- Cash in (fund your account) a minimum of RM100 and complete your purchase
- Congrats, you have invested in the REIT 🙂 Repeat the purchase next month, or consistently
How to buy Versa REITs from Versa Asia
Here’s the step-by-step process to buy Versa REITs from Versa Asia:
- Open Versa Asia account (Obligatory referral code: use code ‘SURAYA’ or click here to get FREE RM10 when you deposit RM100 in your account)
- Select Investments > Versa REITs
- Cash in (fund your account) a minimum of RM100 and complete your purchase
- Congrats, you have invested in the REIT 🙂 Repeat the purchase next month, or consistently
Versa REITs gives you exposure to real estate assets in Singapore, Hong Kong, Malaysia and United States.
3) How to buy REITs from Online Investment platforms
Aside from CDS Account and through roboadvisors, you can also buy Local and International REITs from online investment platforms. For example, you can:
- Buy Local REITs from Rakuten.my, and
- Buy International REITs from FSMOne (they have a bunch of interesting ones, see picture below)
Aside from those two, there may be other online investment platforms you can get Local and International REITs from. Let me know what I missed in the comments.
#3 – Which is the best REITs in Malaysia?
Naturally, the next question you as an investor want to know is, which is the best REITs in Malaysia? Which one(s) should you invest in?
Using simplified fundamental analysis approach, 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 – 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 45million. They also must have good interest coverage ratio (more than 3 is good; this part I’m still struggling to calculate).
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.
On the other hand, the Loan Related Risk part requires you to read the REITs’ balance sheets and calculate the debt to asset ratio and interest coverage ratio.
Hot tip: Finding the best REITs in Malaysia based on Dividend Yield
You may not know this, but Local REITs or Bursa-listed REITs have pretty good performance.
Look at the Yield section in the picture below, taken from The Edge – notice how none of the REITs have negative returns in the last 3 years? This is indication (but not guarantee) of continuing good performance.
You can see historical REITs dividend yield beyond the 3 years at klsescreener.com or TradingView.com.
#4 – 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. Both can be used when making your choice.
In case this is your first time hearing about fundamental and technical analysis, here’s the difference between both:
- 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”.
REITs in Malaysia: Pick Fundamental or Technical Analysis?
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 (as well as the speaker) for REITs is fundamental analysis. If one were to take the FA approach for REITs, the speakeremphasised marketforces, 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 pushREITs 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 asMalaysia 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.
Additionally, according to Chua, it’s quite easy to see good-performing REITs in action – go to any of the managed 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 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 no, avoid.
#5 – Additional information about REITs in Malaysia
- Bursa Marketplace – Go toThe Mkt > REITs – Lists all available REITs in Malaysia. Click on each one for more info.
- You can also learn about REITs from Bursa Academy webinars
- The Complete Guide to REITs in Malaysia by Dividend Magic
- As mentioned, you need a CDS account to buy REITs. You can find more information about CDS accounts here.
- 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.
Conclusion
REITs is like the stocks version of properties, bundled up in package like unit trust and managed by professionals. So if you like the idea of property investment but lazy to manage it yourself, REITs might be a good option for you.
Lastly:My knowledge on REITs in Malaysia is by no means complete, so I invite you to share your knowledge in the comments section below.
