By DATUK STEWART LABROOY
I recently had the pleasure of meeting Singapore’s REIT guru Gabriel Yap during a trip down south. Having followed Gabriel's insightful videos on YouTube, I was eager to quiz him on his deep understanding of the benefits of Real Estate Investment Trusts (REITs).
Part of my visit was to invite him to be a keynote speaker at the Malaysian REIT Managers Association (MRMA) Forum 2024 in September.
Our two-hour conversation covered the global REIT industry, with a focus on Singapore. Gabriel shared his optimistic outlook, suggesting that REITs are poised for better times ahead as they actively restructure and start acquiring again.
This view resonates with the performance of Malaysian REITs (MREITs), which have posted improved results in the first quarter of 2024, fuelled by a flurry of new acquisitions over the past 12 months. This positive trend is expected to continue.
REITs have been a cornerstone of Malaysia's capital market since their inception in 2005. Designed to enable individuals to invest in large-scale, income-generating real estate, REITs have provided Malaysia with numerous economic benefits, both tangible and intangible. They have had a significant multiplier effect on our Gross Domestic Product (GDP) over the past two decades.
Access to real estate investment
REITs have democratised access to real estate investments, allowing individuals to participate in high-quality commercial properties previously accessible only to large institutional investors. REITs also offer investors greater liquidity compared with direct property investments, allowing them to buy and sell assets quickly.
Their main attraction is the distribution of regular quarterly cash dividends to shareholders, giving investors a regular income stream.
Economic and urban development
The capital raised through REITs presents an ideal vehicle for recycling funds in the real estate sector. Developers can monetise their assets and reinvest in new projects without resorting to bank loans. This contributes to GDP growth and urbanisation, creating jobs in construction, property management and related industries.
Intangible benefits of REITs
The establishment of REITs has injected billions of ringgit into the economy while promoting transparency and professionalism in real estate management. Regulatory requirements for disclosure and corporate governance have improved market standards, thereby benefiting the broader economy.
The performance and stability of REITs have also fostered greater confidence among local and international investors in the Malaysian real estate market. This confidence has had a positive spillover effect, encouraging investments in other sectors of the economy.
The writer (left) met up with Yap in Singapore recently.
Multiplier effect on GDP
The multiplier effect of REITs on Malaysia's GDP can be observed through the following channels:
Direct investment. Investments in REITs lead to the development and management of commercial properties, directly contributing to GDP through construction activities and property management services.
Job creation. The development and operation of REIT properties create employment opportunities across various sectors, including construction, real estate, finance and services. Employment generation boosts household incomes and consumption, further driving economic growth.
Consumer spending. The income distributed by REITs to investors increases disposable incomes, leading to higher consumer spending which then stimulates demand for goods and services, and further contributes to GDP growth.
Sectoral linkages. REITs have strong linkages with other sectors such as banking, insurance and retail. The growth of REITs stimulates activity in these sectors, amplifying their impact on GDP.
Urbanisation and infrastructure. The development of commercial properties funded by REITs has led to significant urbanisation and infrastructure improvements. These developments enhance productivity and economic efficiency, which then contributes to long-term GDP growth.
Things are looking up
There has been a flurry of activity in 2024 as REIT managers emerge from the brutal effects of the Covid-19 pandemic. They are getting their mojo back, evidenced by the recent exciting new acquisitions.
The increase in FDIs in Malaysia and the higher interest in global corporations wanting to set up their regional HQs here also means that a real estate boom is around the corner. This is being led by the massive investment in data centre projects recently announced by MIDA.
Can we do better? Since 2005, REITs have increased investment opportunities, enhanced market liquidity, and aided in the efficient recycling of capital, thereby contributing to economic development and diversification. The multiplier effect of REITs on GDP has been significant, driven by direct investments, job creation, consumer spending and sectoral linkages.
However, MREITs need innovation from a regulatory perspective to look beyond our shores to help fuel the growth of their portfolios. We do not appear to be as attractive a destination for foreign investors seeking to invest in MREITs (when compared with our neighbours), or as a preferred destination for foreign portfolios to list their assets on Bursa Malaysia.
Malaysia should aspire to be the best REIT market in the region, attracting both local and foreign listings, and we should be doing whatever is necessary to achieve that goal. We must never settle for second best.
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