Money Issues: Liquidity and Volatility in M-REITs 2012

Local real estate investment trust (M-REITs) will face 2 main issues this year due to eurozone uncertainties and muted global capital market activity, coupled with the small market capitalization in Malaysia by international standards.

Volatility issue

Slower growth is expected with fierce competition for office tenants due to oversupply. Lower rental yields are likely, especially for high-end residential units and office lots. Owners would rather contend with lower yield than negative cash outflow every month. Commercial & 0ffice M-REITs like Tower REIT, Axis REIT and AMFirst REIT will be the first to be affected by this phenomenon. On the contrary, defensive M-REIT portfolios which are less dependent on office lots such as Capital Malls Malaysia Trust (pure play malls REIT) and Al-Aqar (health care REIT) will emerge stronger to endure the cyclical headwinds from the gloomy economic fronts.

Liquidity issue

Comparatively,  M-REITs only has total market capitalization of RM 15 bil against S-REIT US$ 27 bil.  M-REITs are not the focus of many fund managers and institutional investors, so their price tend to stay relatively flat in short to medium term. The consolation price is their consistent dividend yields. A REIT chairman concurred that although M-REIT sector has many diversified property classes, the prospects for M-REIT have not been fully tapped in terms of awareness among potential investors. That was very true in 2005 when the first M-REIT, Axis REIT, was listed in KLSE. However, fast forward 6 years, now we have bigger players such as Sunway REIT and Pavilion REIT which really stole the limelight during their IPOs and subsequently injected more liquidity into M-REIT market.

M-REIT

My Personal Financial Thoughts

I am invested in M-REIT as I previously “preached” in Pavilion REIT – a post-IPO long position and Top 10 reasons why I invest in CapitalMalls Malaysia Trust. I believe in their long term investment return potential, while providing stable dividend income. Of course, if you have sufficient capital, you will be collecting rental yield from real properties instead. I missed the “ship” post 2008 recession in real property investment; heck, I was not even too financially aware by then even though I did dabble in US stock which taught me real experience of risk versus return. Ah, but I digress. Anyway, from personal finance perspective, M-REIT would be advantageous for anyone looking for lower risk paper asset diversification into liquid investments opportunities. Even though REIT is a paper asset, it is correlated with properties, so how wrong can you get? You also minus away the hassle of  real properties purchase and large upfront costs. In my opinion, it is a way to fill the gap for retail bonds in Malaysia until it becomes readily available. It is way better than bond fund as you have control over which REIT counters you want to invest in. So, Buy and Wait, not Wait and Buy as CK Wong’s mantra from InvestKK.com.

Adapted from StarProperty. Image source

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