Disclaimer: This article is in no way financial advice, nor solicitation to buy or sell shares in this company. It is purely for educational purposes only. You are highly recommended to conduct all necessary due diligence and make your own informed decisions before making any financial decisions. The writer already owns shares in S-REITs and may at any point in time increase or reduce their positions without prior notice. Do not try to copy trade!

In this post, let’s learn about REITs and the opportunity given the macroeconomic situation in the world today.

Brief Background on REITs

REIT, or Real Estate Invest Trust, is a form of real estate investment without directly managing property on your own like a landlord. REITs are not the same asset class as stocks, although in most cases they share many similarities.

REITs address many of the pain points faced by property investors, such as:

1. Liquidity
   When you buy a property, you can’t easily convert it back into cash. With REITs, you can sell your units just like how you would your shares in the stock market, and can easily convert your holdings into cash in a short period of time.

2. Management of Property by Professionals
   Tenant screening, collection of rent, repairing and renovating your property, etc. REITs employ property managers to handle these and other tasks.

3. Diversification
   For most people, the only property exposure they may have are residential units. REITs allow diversification into other types of real estate such as warehouses, shopping malls, factories, hotels, and so on.

4. Tax Benefit of REIT

   A defining feature of REITs as an investment is that they are required by law to declare at least 90% of distributable income to unitholders.

   

   Snapshot taken from SUNREIT’s Q2FY25 QR

   This means that REITs provide regular income to unitholders based on the rental collected from the properties under the REITs’ management, minus the management fees and other costs.

   This also provides visibility for unit holders as you would be able to roughly calculate how much income you would receive from your ownership in a REIT, compared to stocks whose dividends are mostly not guaranteed.

5. Low Capital Requirements
   To get your first property, you typically need at least 10% of the value of the property as down-payment, not to mention the loan needed for buying the unit itself. With REITs, you can start even with a small capital size.

Examples of Malaysia REITs

In Malaysia, some examples famous REITs that you have probably visited before are the likes of:

It’s important to note that in Malaysia, while the REITs do not pay income tax, unitholders of REITs are subjected to 10% withholding tax, so the real Dividend Yield (DY) you will receive is around 90% of the displayed DY numbers.

On the other hand, Singapore REITs (S-REITs) need to pay income tax to the government while the unitholders of S-REITs do not need to pay tax anymore, so the DY you see is the DY you will get.

REITs are mainly impacted by a few fixed and variable costs. In general, REIT income is quite stable unless there are major policy changes in the country they operate in. For example, the expansion of SST on the imposition of 8% SST (previously 0%) on commercial leases for entities with annual revenue exceeding RM500,000, this directly increased the operating cost of REITs.

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