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Tuesday, January 29, 2008

REITs on the rise in Malaysia

KUALA LUMPUR: Although it is a standard practice in certain countries for property developers to become Real Estate Investment Trust (REIT) promoters and to inject their own projects into the trust, Malaysians are still skeptical and considers it an “asset dumping” exercise by the companies, said Asia Pacific International Real Estate Federation (FIABCI) Regional Secretariat secretary general Kumar Tharmalingam (pix).

“However, the Securities Commission has clear guidelines as to the value that can be put (into the REIT) and the returns to the investors [have to be acceptable],” he said after presenting his paper titled 2008 Outlook for REITs in Malaysia/Asia: Opportunities and Trends at the Property Outlook for 2008 & Emerging Trends in Malaysian Real Estate seminar yesterday.

Several developers that have plans to enter the REIT market this year include TA Properties Sdn Bhd, Bandar Raya Development Berhad, UEM Land Sdn Bhd and Sunway City Bhd.

“There will be more listings in the REIT market this year as compared to last year but steps must be taken to improve the tax treatment and increase the attractiveness of the regulations compared to Singapore and Hong Kong,” he added.

According to him, besides Axis REIT, which purchases real estate from third parties for injection into a REIT, the current and upcoming REITs have their own supply chain to place existing and future commercial assets into their respective trusts.

Nevertheless, he hopes to see REITs writing put options and agreed values on the assets before construction even begins.

“This will make it easy for developers to get financing for the project,” he said, adding that the resultant recycling of capital would ensure faster returns and turnaround time.

“The sale of Glomac Tower and Menara YNH to Kuwait Finance House for RM1,140 psf and RM1,250 psf respectively are classic examples,” he said.

He added that although there are risks in fixing a selling price on a building before its completion, the quality of the trust managers would offset the problem.

“In Malaysia, there are very few highquality trust managers like those found in established REIT markets like Australia.

Hence, we should allow those experienced trust managers to come in and have 100% ownership,” he said, adding that this would raise competition among the local companies.

Budget 2008 proposed an increase in foreign ownership on REITs management companies to 70% from 49%, with the bumiputera-ownership requirement remaining at 30%.

Kumar said Islamic REITs have huge potential due to the tax incentives provided as Malaysia strive to become the global market leader. “It is a blue ocean area that we can compete in as we
have relationships with Middle Eastern countries with lots of cash,” he said.

He added that other factors integral to the success of REITs include a cultural advantage, a strong tourism industry and a local Islamic population that wants to invest in Syariah-compliant investments.

He foresees more Islamic REITs coming into the market in the future, including Middle Eastern funds setting up here.

Other speakers at the one-day event included Regroup Associates Sdn Bhd managing director Allan Soo, Raine & Horne International Zaki + Partners Sdn Bhd’s Michael Geh and Ho Chin Soon, director of Ho Chin Soon Research Sdn Bhd.

By theSun (by Yap Yew Jin)

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