18 September 2010

Understanding REITs

What is a Real Estate Investment Trust (REIT)?
A REIT is a collective investment scheme that invests primarily in income-producing real estate assets such as shopping centers, offices, warehouses and hotels. To qualify as a REIT, a fund must have most of its assets and income tied to real estate investment and must distribute at least 90% of its total income to unit holders annually. In Malaysia, REITs are exempted from corporate tax if it distributes at least 90% of its total income.

Who is unit holders?
Every investor (like us) who invest into REITs are called unit holders, and entitled to receive income distributions (dividend).

Why invest in REITs?
REITs typically provide high income distribution (currently, 6-10% annually) plus the potential capital appreciation. Comparing 3-4% fixed deposit rate, REITs dividend yield is definitely better.

How to invest in REITs?
One can buy units in any REIT, which is listed on Bursa Malaysia, just like normal stocks trading.

Differences between REITs and Unit Trust?
Direct vs Indirect investment. Almost the same.

How often REITs makes an income distribution?
It depends on respective REITs, usually semi-annually or quarterly.

What is the Tax treatment of unit holders?
Withholding tax will be deducted for distributions made to the following categories:

Risks involved in Malaysia REIT...
- Low liquidity
- Unfavorable interest rate environment
- Deflation and Devaluation of assets

Finance Malaysia's view:
Generally, REIT is suitable for everyone (young, experienced, rich, resourceful, professional...) because it is an hassle-free exposure to real estate investment. Finance Malaysia hopes that more players will join the REIT bandwagon in Malaysia, such as IGB (Mid Valley City), IOI Corp, and even AEON's Jaya Jusco.

Coming next...
- More on M-REIT
- 5 rules of thumb on MREIT investing

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