Do you know that it is possible to start commercial property investment with REIT? Yes, investments could start as low as probably a few hundred ringgit and not the typical 10% downpayment for a property which could easily be RM50,000 for a RM500,000 property.
What is REIT?
REIT is Real Estate Investment Trust. We could invest into them just like how we do for Unit Trust (UT) or even buying stocks in BURSA Malaysia. Just like the UT or the management of the companies, they would do their best to ensure the money we invested are put to good use. Do note that there’s no guarantee as usual. This is not like the EPF where there’s a guarantee of a minimum 2.5% per year yeah…
How do REITs generate their income?
Very briefly, the professionals behind these REITs will invest into commercial properties which will generate incomes. Commercial properties are not necessary just the malls, factories etc. It could also be SOHO… It could be an acquisition of a commercial property for continuous rental stream. It’s possible to even acquire and redevelop an underperforming mall and turning it into a sufficiently popular mall too. Meanwhile for the existing malls, the right management team could make it even better and with more visitors too.
In future, if the price of some of these assets increase in value, they could sell the property and the shareholders would also enjoy part of the profits while they reinvest into other income generating real estate opportunities. These rental returns or even profits from selling an asset which has appreciated would be returned to the investors on a periodical basis. Again, these are for LONG TERM yeah. Anything related to property cannot suddenly rise 10% the next day…
Do we get returns every year?
REITs have tax incentives from the government. If it distributes at least 90% of its current year taxable income, the REIT will not need to pay the 25% income tax. This means that REITs would want to maximise this benefit and with this 25% income tax exemption, it also meant that most of the time if we compare REITs with most of the counters in BURSA, the dividend returns from REITs would be superior.
On a longer term basis, with the appreciation of the property owned by REITs, the price per unit would also reflect this appreciation and thus the RM1,000 invested a few years back may have appreciated too.
Here are the 7 reasons to invest into REITS in Malaysia
#1 – We love property as an investment but does NOT KNOW the HOW
It’s a very risky thing to buy into a RM500,000 property, thinking of it as an investment with all the sweet promises from the sales person and does not know enough. There’s a chance to go bankrupt yeah (what is bankrupt? read here), if somehow we are just so unlucky or somehow bought into a super overpriced property. The latter will set us back many years even if we managed to climb out of it to restart.
#2 – Easy to start
- Choose a brokerage firm. Choices of brokerage firms? (here)
- Open a trading account and CDS account. What is a CDS account? (here)
- Put funds into your trading account
- Choose a REIT and Invest.
#3 – Affordable to start
Anyone who’s earning a monthly salary could start. There’s no need to save for years to buy a property anymore. Just proceed to have exposure to a mall you love to frequent every week. If there are lots of people in the mall and you think highly of the mall and wants to ‘OWN’ the mall, even if it’s a super duper small ‘ownership’ then go and find the corresponding REIT and buy some units. Then, you can start telling people that you are technically an owner of the mall too, sharing with thousand or more investors.
#4 – Liquidity
The major issue with property is that it needs time to view, time to negotiate, time to get agreements ready, time to get the loans, time to wait until we get the key… and more time. With REITs, well, it’s almost immediate that you could convert the investments into cash. Just need to sell the REIT units and you will get back your cash within days.
#5 Stable dividends
Start getting dividends periodically every year. (note that this is not a guarantee even if it’s most probably). As of currently, the dividends are also above the below 2% fixed deposit rates which most of us are getting. Please check the REITs prior to deciding yeah. Not all REITs are the same.
#6 It’s pretty safe too
REITs are regulated and needs to be approved by the relevant institutions yeah. In other words, REITs need to be approved before they could start offering this investment opportunity to the public. Click here to read in full of all the compliance they needed prior to getting listed in BURSA.
#7 Lots of OPTIONS to pick from.
Just pick the one which matches to what you like. It could the office you are currently in. It could the mall your wife spends the most money in and more. Here is a list of all of them. Go to BURSA website to have details for each and everyone of them.
When it comes to property, there are a lot of ways to invest. Directly buying a property is one. Buying stocks of property developers would be another way. REITs would provide another way where the professionals will now manage what we are investing. Of course the same answer remains. If we believe we could do better than these professionals behind the REITs, then please do proceed to invest by ourselves. That’s always the best option as we would have full control in what we do. For REITs, we have no control on how they invest our money yeah. Happy knowing.
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