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5 Reasons Why We Should Consider REIT as a Long-Term Investment

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Meet Tom.

Tom is a sales engineer. He has been working since graduating from a local university three years ago. From which, Tom is able to save up a sizeable sum of RM 30,000 as he is careful in spending.

However, just like many who are in their late-20s residing in the Klang Valley, Tom remains doubtful of achieving his dream of owning a property before turning thirty. Property prices seem to rise faster than his ability to save money.

COMIC - REIT

Out of Reach

Today, it is common for a tiny unit of condominium to be priced at RM 500,000 in the Klang Valley. If Tom is interested, he needs to prepare at least RM 70,000 for the down payment, stamp duties and legal fees for the property purchase. The amount would be higher if Tom intends to renovate and furnish his property.

Plan B: Invest in REITs

Needless to say, Tom could not afford to buy a RM 500,000 condominium. Presently, if you are reading this and your situation happens to resemble Tom’s, I have good news for you. There is another viable option for us to invest in properties.

The option is known as Real Estate Investment Trusts (REITs). The concept is simple and here’s how it works:

  1. Investors (like us) place money into a REIT in exchange of its units. Thus, we become unitholders (or shareholders) of a REIT.
  2. The REIT would use investors’ money to buy investment properties. They include shopping malls, office buildings, industrial buildings, hotels and even hospital buildings.
  3. From which, the REIT would derive rental income from them. Upon deducting expenses, the net income received by the REIT would then be distributed to unitholders (like us).

Affordable & Convenient

Today, we can buy and sell units of REITs conveniently like shares as REITs are listed on stock exchanges. This includes Bursa Malaysia. The minimum amount of units to be bought and sold is set at 100 units per transaction. Thus, unlike physical properties, we can invest and participate in future profits generated from commercial properties which are worth billions with as little as a few hundred Ringgit.

Before investing, it is important for us to understand that REITs are structured to be long-term investments. They are not primarily designed for short-term trading gains. In this article, I would share 5 reasons why we should consider REITs as long-term investments. They are:

#1: REITs pay out Regular Distributions

All REITs listed on Bursa Malaysia pay at least 90% of its realized income to its unitholders. They are known as income distributions. Most would declare and pay out income distributions on a quarterly basis. Just a handful of REITs choose to distribute income on a half-yearly or on an annual basis. Since its introduction, most REITs have been producing steady stream of passive income to its unitholders.

#2: Diversified Pool of Tenants

REITs which own a portfolio of properties would derive income from a diversified pool of tenants. Let us take shopping malls as an example. A shopping mall derives income from leasing out retail spaces to hundreds of tenants such as Starbucks, McDonalds, H&M, Uniqlo, and so on and so forth.

If one of the many tenants decides to end its lease, the shopping mall would continue to derive income from its remaining tenants. There provides income stability to the shopping mall. In a way, it is a distinctive advantage over owning and renting out a condominium unit to a tenant. After all, the owner would receive no further income once the tenant decides to move out from his condominium.

#3: Benefiting from Long-Term Leases

There are REITs which own properties where the lease agreement structured is long-term. The period can be as long as 10 – 15 years. This means, if you own units of the respective REIT, you would receive regular income distributions from these properties for a very long time. Again, it adds income stability to the REIT which is also another advantage over renting out a condominium unit to a tenant for 1 – 2 years.

#4: Increase Income with Rent Reversions

Once a lease agreement expires, a REIT would try to renew the lease agreement with its existing tenant for the designated property. Often, these agreements are renewed at a higher rate as compared to its existing rate due to inflation and rise in property value. This would contribute to growing income distributions to unitholders who are holding onto the REIT over the long-term.

#5: Increase Income with New Property Acquisitions

This is a form of leverage for Tom who is unable to afford to buy a physical property due to his financial position. Investors who have weaker financial standing are able to leverage on a REIT’s financial position which is stronger to acquire new investment properties. This would also contribute to growth in income distributions to unitholders.

Which REITs should I buy?

Just hold your horses for a moment.

There are more to consider before investing in REITs. First of all, there are 17 REITs listed on Bursa Malaysia. You may want to ask yourself the following questions:

  • How do I assess the financial results of a REIT?
  • What’s my dividend yield for investing in REITs?
  • Tax considerations for Investing in REITs
  • When do I buy and sell REITs?
  • How do I start building a complete REIT-based portfolio that generates steady passive income?

These questions are helpful to further enhance profits from investing in REITs while reducing unnecessary risks from investing in bad ones.

This article is sponsored by Securities Commission Malaysia, under its InvestSmart Initiative.

Securities Commission MalaysiaInvestSmart

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Is It Time To REIThink Your Investments?

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Are you unable to afford investing in property because of the huge costs involved? Well, the good news is youcan indirectly invest in property via a Real Estate Investment Trust (REIT)!

These may include office buildings, shopping malls, apartments, hotels, resorts, warehouses or storage facilities.

Unlike other real estate companies, a REIT does not develop real estate property to resell them for profit. Instead, a REIT buys and develops properties to operate them as part of its own investment portfolio.

Check out our infographic below to find out how it works.

 

https://www.imoney.my/articles/is-it-time-to-reithink-your-investments

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Questions You Should Ask Before Investing in Amanah Hartanah Bumiputera

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You may have seen or heard Amanah Hartanah Bumiputera (AHB) advertisements on TV, radio, newspaper and other channels recently. Are you interested to invest in AHB?

You may have seen or heard Amanah Hartanah Bumiputera (AHB) advertisements on TV, radio, newspaper and other channels recently. Are you interested to invest in AHB? How about its risks and returns? Is it better than your existing investment? Read on to know more about AHB so you can make an informed investment decision.

Essentially, AHB is a Shariah-compliant unit trust fund that invests primarily in the beneficial ownership of commercial properties in prime locations in Malaysia. The fund size is 3.5 billion units, with a minimum initial investment of RM100 at a fixed price of RM1 per unit, and a maximum of RM500,000. The Fund seeks to provide Unit Holders with a regular and consistent income stream whilst preserving the Unit Holders' investment capital.

If you are a member of the Bumiputera community and eligible to invest in AHB, there are some important questions you should first ask. This article will help you to:

  • identify the key questions you need to ask before investing in AHB; and
  • make an informed decision for investing in AHB after asking the questions.

 

Question #1: What is the objective of AHB?

The AHB seeks to provide Bumiputera investors with regular and consistent income without sacrificing their capital.

 

Question #2: How are the assets in AHB allocated?

AHB allocates its assets in beneficial ownership of real estate in Malaysia which are Shariah Compliant, specifically offices, shopping, commercial, logistics and industrial complexes. It also invests in cash and Shariah-compliant money market instruments to fulfill its liquidity requirements.

 

Question #3: What is the minimum initial investment to start investing in AHB?

If you plan to invest in AHB using cash, you will need to purchase no less than 100 units. If you wish to use your Employees Provident Fund (EPF) money, you are allowed to do so, but you must purchase no less than 1,000 units. The maximum combined limit for you to purchase is 500,000 units.

 

Question #4: What is the fund’s distribution policy?

If AHB earns an income from its beneficial ownership of real estate, the Manager may decide to give distributions on a twice-yearly basis or more. However, this is subject to the Trustee’s agreement. To enjoy the distribution, AHB investors must provide their bank account numbers when applying to invest.

 

Question #5: Are there any sales or redemption charges?

Currently, the Manager does not impose any charge whenever you buy or sell AHB units.

 

Question #6: How frequently can I sell (redeem) my AHB units?

You may sell your AHB units not more than ONCE in a calendar month. For example, if January has 31 days you may only sell your AHB units ONCE during that 31-day duration. You can only sell further AHB units when the NEXT calendar month starts i.e. February.

 

Question #7: What is the Shariah status of AHB?

AHB is a Shariah-compliant investment scheme.

 

Question #8: Who is eligible to invest in AHB?

AHB is only open to Malaysian Bumiputeras aged 18 years old and above. Those aged below 18 (minimum 3 months old) are eligible but must register with a Bumiputera guardian/parent above the age of 18.

 

Question #9: What is the value of AHB’s assets?

Under the management of Pelaburan Hartanah Berhad, AHB’s total value of completed assets is RM1.8 billion as of April 2013. Pelaburan Hartanah Berhad's ownership of completed properties includes Tower 3, Avenue 7 in Bangsar South City, Menara Bumiputra-Commerce at Jalan Raja Laut, CP Tower in Petaling Jaya, Wisma Consplant in Subang Jaya, Peremba Square in Shah Alam and Tesco Setia Alam in Shah Alam.

 

Question #10: How frequent is the income distribution?

Income distribution (if any) will be made on a semi-annual basis.

 

Question #11: Can the distribution be reinvested?

Generally, income distribution will be paid in cash (i.e. directly credited into your bank account). Unit holders may re-invest subject to the availability of units.

 

Question #12: Is there a maturity period for the Fund?

There is no maturity period for the Fund. The Fund’s tenure is indefinite; subject to the terms of the Deed.

 

 

Brought to you by Securities Commission Malaysia, as part of its ongoing efforts to create well-informed and savvy investors in the capital market. The information provided in this article is only for educational purposes and should not be used as a substitute for legal or other professional advice. For more information, log on to www.investsmartsc.my, call 03-62048888 or visit our Facebook page at www.facebook.com/InvestSmartSC

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Property-based Unit Trust Funds vs. Real Estate Investment Funds

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Although Real Estate Investment Funds, or more commonly known as REITs and conventional property-based equity unit trust funds share some common traits, but in actual sense, there are real differences between them.

Although Real Estate Investment Funds, or more commonly known as REITs and conventional property-based equity unit trust funds share some common traits, but in actual sense, there are real differences between them. Read on to the end and you will be able to identify the differences between these two types of funds.

 

What is real estate?

propertybasedutfvsreifunds1

Real estate can be made up of pieces of raw land, commercial buildings, such as shopping mall, office blocks, factories; or residential properties, such as houses and condominiums.  The price of real estate is relatively more stable than equities, and it enables investors to have effective diversification as they include it in their investment portfolio. Investors can purchase a piece of property and wait for it to appreciate in price to earn capital gain or rent it out to earn steady stream of rental income. Unfortunately properties are usually high in price thus investing directly in them involves higher risk, bigger capital and higher cost.  This is where, a pool investment platform such as REITs or property-based equity trust funds could provide a way for investors to obtain a cheaper way of investing in real estate without having the headache of being properties owners.

 

Differences between Property-based unit trust funds and REITs

In general, both REITs and property-based equity unit trust funds are types of collective investment schemes, which are based on the investment principle of diversification that enables the investors to enjoy the benefits of risk spreading without incurring high cost. However, while property-based unit trust funds invest in quoted shares of property development companies which are listed on the exchange, REITs invest mainly in real estate and derive stream of income from the rental of the properties. According to the guidelines set by the Securities Commissions, a REIT must have at least 50% of the fund’s total asset invested in real estate and single-purpose companies, which are unlisted companies with real estate as principal assets.

 

The fund managers of property-based unit trust funds usually act as passive investors in the stock counters that they choose to invest in, whereas the REITs fund management have the additional function of managing and enhancing the value of the real estate properties that the funds acquire, which will eventually be the assets to provide the rental or lease income to the investors. Therefore, when selecting REITs, it is important for the investors to look into the experience of the fund management team to make sure that the appointed property manager has a proven track record in managing real estate properties.

 

When investors purchase property-based unit trust funds, there could be more price fluctuation seen in the short-term as the funds’ performances can be influenced by the overall stock market sentiment as well as the short-term economic cycle that affects the performances of the property development companies in which the funds were invested in, whereas those who invest in REITs will have less price fluctuation since the income is mainly derived from rental income which is mostly secured in the short-term. Thus, when selecting good quality REITs, investors should look for REITs with well-diversified properties and with an average length of the rental contracts of above 2 years.

 


 

Both property-based unit trust funds and REITs will provide investors with capital gain as well as dividend income. However, on average, the dividend yield from REITs is relatively higher as compared to property-based unit trust funds since the main source of income for REITs is its rental income and by getting exemption from corporate tax if it distributes at least 90% of its total income, REITs are encouraged to payout most of its income.,

 

Property-based unit trust funds, like any other equity trust funds, are open-end funds, in the sense that the individual fund size is largely depending on the success in selling the fund that are sold in units to investors and the holders of the trust units are able to sell the units back to the issuers. On the contrary, REITs are sold through issue of shares and these are close-end funds, which means the amount of shares issued are fixed and the investors who purchase the REITs are unable to sell it back to the issuer as they can only sell the shares to other investors in the exchange, just like the regular stocks listed in the exchange.

 

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In essence, both property-based unit trust funds and REITs provide investors with the benefits of diversification and professional fund management. However, due to its high yielding nature, REITs can be seen as a good alternative for investors who prefer to receive high dividend income that is more predictable rather capital gain through price appreciation.

 

Now that you know the differences between REITS and property-based unit trust funds, you are able to make a more informed choice when decided where and how to invest your money.

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

REIT Demystified

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For most people, investing in real estate is limited to residential ownership with little thought of owning shopping complexes, industrial warehouses or office buildings etc.

For most people, investing in real estate is limited to residential ownership with little thought of owning shopping complexes, industrial warehouses or office buildings etc. Now, real estate investors can literally stretch their investment horizon with REITs (pronounced "reets") which combine the best features of real estate and trust funds. They give an investor a practical and effective means to include professionally-managed real estate in their own investment portfolio. It also allows small investors a means to invest in real estate assets through a vehicle that is highly liquid compared to buying a real estate itself and with a smaller investment capital.

What is REIT?
Real estate investment trust or REIT is a collective investment vehicle, in the form of a trust fund, which pools money from investors and uses the pooled capital to buy, manage and sell real estate assets, such as residential or commercial buildings, retail or industrial lots, or other real estate-related assets (e.g. shares in public-listed property companies, listed or unlisted debt securities of property companies etc.). It is a passive investment vehicle which acquires and holds income generating real estates. REITs are driven primarily by recurrent rental income from real estates, and will distribute its income based on the prevalent tax structure governing REITs, thus providing stable and consistent income to unit holders.

The objective of REITs is to obtain reasonable investment returns. Total returns are generated from the rental income plus any capital appreciation that comes from holding the real estate assets over the period. Unit holders will then receive their returns, be it in the form of distribution or capital gains.

How does it work?
In essence, REITs work like any other trust funds which involve the following parties:

 

 

 


 

How to invest in REITs?
There are listed and non-listed REITs. For listed REITs, you can buy and sell them like listed stocks. There are currently REITs listed on the Bursa Malaysia and investors need to go through a stockbroker to invest in them. Like any listed products on the Exchange, investors should be aware that REITs may trade at a premium or discount to their respective net asset values.

For unlisted REITs, like any other unit trust products, you can buy from or sell to the management company or through other authorised agents.

 

What is the difference between REITs and property stock/company?

REITs vs. property stock/company

REITs

Property stock/ company

A collective investment vehicle, in the form of a trust fund, that invests in real estate and property-related businesses, including property stocks.

Property stocks are shares of companies (property companies) which deal in real estate or property-related business.

A Securities Commission (SC) approved management company manages a REIT. An appointed trustee safeguards the assets for unit holders.

A property company is managed like any other company.

A REIT has a well-defined investment policy and invests largely in a portfolio of income-generating real estates.

A property company owns real estates and is not restricted to carrying on a business in property investment and property development.

The trustee holds the real estates or properties in a REIT portfolio on trust for the REIT investors.

The board of directors, on behalf of the shareholders, will monitor a property company to ensure that its assets are protected and that the company is properly run.

A REIT investor is subjected to management and trustee fees, including property management fees.

An investor of a property stock is not subjected to management or trustee fees.

REITs are exempt from income tax if 90% or more of its total income is distributed to unit holders. Otherwise, the total income of the REIT will be taxed at the prevailing rate.

A property company is subject to corporate tax.

 

 

Why should you invest in REITs?

  • Professional management
    Professional managers manage REITs and they have the expertise beyond the knowledge of individual investors.
  • Liquidity (Unlisted REITs)
    Unlike traditional private real estate ownership, unlisted REITs are liquid assets that can be sold fairly quickly to raise cash or take advantage of other investment opportunities. One of the reasons for the liquid nature of REITs is that its units are primarily listed and traded on a stock exchange.
  • Convenience
    Sale and purchase agreements, lawyers' fees and stamp duties are among the many things real estate investors have to put up with. Through REITs, investors are relieved of such factors.
  • Comfort of regulations
    REITs must comply with the requirements of the Guidelines on Real Estate Investment Trusts and the Guidelines on Islamic Real Estate Investment Trusts, as well as the Capital Markets and Services Act 2007, which has investor protection as one of its key objectives.

 

Risks associated with REITs

Distribution is subject to cash availability

If the real estates of the REITs do not generate sufficient net operating profit and cash flow, the REITs ability to make distributions will be adversely affected.

 

Returns are not guaranteed

The distribution payments from investing in REITs are not guaranteed and the total return of REITs, amongst others, is subject to the performance of the property market. Hence, the unit price of a REIT may go down if its underlying properties drop in value.

 

Loss of control over investment

Investors will not have direct control over the management company's investment decisions like when to buy or sell certain real estates, or how they will be managed.

 

Market factors

Like other investment products, REITs are subject to the vagaries of market demand and supply. As such, market volatility, confidence in the economy and changes in the interest rates may affect REITs price.

There are other risks associated with investments in REITs. Please read and understand these risks that are extensively highlighted in the REIT's prospectus.

 

Before you invest in REITs, observe the following:

Read and understand the prospectus thoroughly;

Study the list of real estates included in the REIT investment portfolio, such as the location of the real estates, tenancy mix, lease length, rental payments in arrears and other related investment information (e.g. distribution and fees and charges);

Analyse and understand the fund's annual reports.

 

So, if you are thinking of investing in REITs, get as much information as possible on the product from the management company to help you make a well-informed decision. If in doubt as to the action to be taken, consult your stockbroker or any other licensed professional adviser.

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: admin@investsmartsc.my.