Tajuddin rebuts WSJ’s report on humdrum local REIT market

The unveiling of REIT Index yesterday would likely pave the way for the market to grow


Bursa Malaysia Bhd CEO Datuk Seri Tajuddin Atan has disproved a recent article by the Wall Street Journal (WSJ) which reported that the local real estate investment trust (REIT) market has lost its lustre.

The story went with a headline “Malaysia’s REIT Dreams Fade” which indicated that international investors are not fired up to the local REIT market as compared to two years ago.

The article dated Oct 3, 2017, has singled out Malaysia, claiming that the mood has shifted in a reversal, which proved that REITs are not turning out to be a silver bullet for emerging markets (EMs) aiming to channel public capital into real estate.

Ernst & Young found the majority of the US$1.7 trillion (RM7.19 trillion) REIT market capitalisation is in the US whereas less than 5% of it is in EMs.

It professed that Malaysia’s REIT appeared to be on track to achieve success, however fail to draw in international investors.

“They haven’t benefitted from the wave of international capital that has been driving Hong Kong’s and Singapore’s REIT markets,” Corrine Ng of Australia’s APN Property Group Ltd was quoted by the WSJ.

Tajuddin said: “The markets have tracked higher numbers this year based on my reading on Asean. There may be some funds movements in and out across Asia, however, in Malaysia, foreign funds have increased RM10.2 billion.”

He also noted that the article needs to be looked at from a bigger perspective.

“I believe there is an improvement there. We just have to look at the report closely,” he said.

On the other hand, Malaysian REIT Managers Association chairman Datuk Jeffrey Ng Tiong Lip neither agrees nor disagrees with the WSJ declaration.

“There is still potential for growth. Regionally, each of the countries in Asean has posted much higher gross domestic product growth when compared to developed countries. Fund managers have to balance their portfolios,” Ng said.

He also said there are a number of factors that would influence the market flow. Among them are the interest-rate variance between the eastern and western economies.

Having said that, Ng pointed out that the sector does witness some deceleration among foreign investors.

“A lot of the foreign funds from the US, UK and Europe, driven by big listings such as the Sunway REIT, Pavilion REIT, IGB REIT, as well as CapitaLand Malaysia Mall Trust, emerged in a big way, five to seven years ago. These REITs with large assets under management had lured foreign investors. However, given that the investors had made big profits earlier, they thought future performance may not be moving as fast as earlier on, and for this reason they are moving their resources elsewhere for quicker returns,” he said.

There are 18 REITs listed on Bursa Malaysia to date. Local REIT industry has grown from a market capitalisation of RM300 million upon the listing of Axis REIT in 2005 to RM44 billion on Oct 19, 2017, which represents a compound annual growth rate of 24%. Collectively, the figure represents 2.4% of the total market capitalisation on the exchange.

REIT market capitalisation in developed countries like Japan and Singapore is at 10 and seven times larger than the local market respectively.

The dividend yields for REITs was 5% in September compared to the FTSE Bursa Malaysia KLCI’s (FBM KLCI) 3%.

The unveiling of the REIT Index yesterday would likely pave the way for the market to grow as it would boost company’s profile and visibility.

According to Tajuddin, prior to formalising the index, Bursa Malaysia had backtested the REIT industry against the FBM KLCI and Property Index for the past three years. Results revealed that the REIT Index had outperformed the FBM KLCI and Property Index by 15% and 26% respectively.

The exchange’s 11th in-house estimated index is capped at 10% to prevent any single constituent from exerting a disproportionate influence on the index.

“The release of the REIT Index is timely in line with the global trends in which REITs have come to be a major asset class for investors. The index would also provide an opportunity to create an exchange-traded fund in the future,” concluded Tajuddin.