|An M-REIT Brief History & Overview|
Malaysia was the first country in the Asian region to experiment with the idea of publicly traded property trusts. As early as the 1990s, several fledgling property trusts were conceived. The investments failed to gather mainstream popularity due to a host of factors including unfavourable tax rulings and relatively low yields in comparison to safer conventional investments of the time in the country.
But the efforts towards establishing more property trust funds in the country came to an abrupt halt during the Asian economic crisis that gripped the region from 1997-1998. Office and mall vacancy rates in the city centre went up to as high as 18% at one point of time. It was not until several years later before the property trusts model was seriously given thought to again.
In 2002, neighbouring economy Singapore successfully debuted its first REIT to the public. CapitaMall Trust, Singapore's first S-REIT was encouragingly over subscribed many times over despite having only 3 shopping malls under its belt. This gave the Malaysian regulators enough courage to try again in 2004 at forging a REIT market in the country.
A tax ruling that allowed individual investors in M-REITs to be taxed at personal income tax levels instead of a previously uniform 28% was enacted. M-REITs were also allowed to make overseas property acquisitions. To differentiate themselves from their neighbours to the south, Malaysia also tried to posture itself as a destination for Islamic investments including Sharia-compliant REITs , hoping to draw in investments from the Middle East.
The first trust to list after the tax regulation change was Axis REIT. Launched in early 2005, Axis REIT saw its share price by more than 40% just a year later. Buoyed buy this success, the Al-Aqar REIT, with its slew of healthcare properties across the country, was then offered to the public. And what was then seen to be a vote of confidence, Singapore's CapitaLand joined the party in 2006 by launching Quill Capita Trust with Malaysian real estate firm Quill Group. CapitaLand has since launched another Retail REIT in the country, CapitaMalls Malaysia.
Today M-REITs hold promising futures ahead of them. Though Singapore, Japan and Hong Kong have been leading the pack of Asian REITs for much of the last decade, these countries are largely densely populated nations where a limited amount of greenfield developments or accretive acquisitions can be counted upon. Malaysia on the other hand is a country with a youthful population, growing disposable income and plenty of room for property development.
Besides economic shocks, the only projected de-railers ahead that could stop the march of M-REITs would be unfavourable government regulations for property acquisitions or the absence of favourable tax rulings that their peers in the region such as Singapore REITs enjoy. But should these be overcome, there is little reason to over look M-REITs as a vital component of your REIT portfolio strategy.