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Monday, July 19, 2010

REIT managers seek cut in withholding tax

MANAGERS of real estate investment trusts (REITs) are hoping for a reduction in withholding tax for REIT investors in next year's budget, to spur the industry growth and make it more competitive.

To keep the industry in line with international practice, REIT managers are also proposing for relaxation on fund-raising exercises.

These issues will be brought up by the Malaysian REIT Managers Association (MRMA) during the pre-budget dialogue.

MRMA pro-tem vice-chairman Lim Yoon Peng said the incentives are needed to grow the local REIT industry, which is still in an infancy stage.

"REITs are a new asset class, which are fairly attractive, defensive, low beta, not volatile, pay regular dividend and tax-efficient.

"But not everybody in the country is familiar with REIT, especially among retail investors," he said in an interview with Business Times in Kuala Lumpur recently.

MRMA, which was formed last year, comprises the managers of 11 Malaysian REITs.

They are AmFirst REIT, AmanahRaya REIT, Atrium REIT, Axis-REIT, Al-Hadharah Boustead REIT, Al-Aqar KPJ REIT, Hektar REIT, UOA REIT, Quill Capita Trust, Tower REIT and Starhill REIT.

The REITs are all listed under the new Securities Commission (SC) Guidelines for the Real Estate Investment Trusts introduced in January 2005.

Lim, who is also chief executive officer of Am ARA REIT Managers Sdn Bhd, the manager of AmFIRST REIT, said the proposed reduction in the withholding tax for REIT investors and relaxation of fund-raising exercises requires amendments to the SC guidelines.

Currently, the SC guidelines state that REITs can only place out new units of up to 20 per cent and it can be done only once in every 12 months.

Lim said REITs need to raise funds more frequently in order to acquire more properties to expand the trust.

He also said that in Singapore, individuals do not pay withholding tax on REIT investments.

Both local and foreign retail investors in Malaysia now have to pay a 10 per cent withholding tax.

Lim said as REITs pay off almost 100 per cent of their income, they are an attractive asset investment class.

He said REITs are not as volatile as equities. They also have low correlation, where, for instance during the recent euro crisis, some shares dropped by 5 to 8 per cent but REIT shares did not fall that low.

"As REITs pay regular and stable income, they are a good investment portfolio for insurance and pension funds.

"Retail investors' awareness on REITs is very low and REIT managers have been organising roadshows to familiarise them with the benefits of investing in REITs," he said.

Lim said generally, promoters and sponsors take up between 40 and 50 per cent of a REIT's initial fund size, and allocate a further 40 per cent to institutional investors. This leaves only a tiny portion for retail investors.

The current market capitalisation of REITs in Malaysia is some RM6 billion and, together with Sunway REIT and CapitaMalls Trust coming onstream by the middle of this month, the total market capitalisation will exceed the RM10 billion mark.

By Business Times

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