More REITs seen with easing of guidelines

Extracted from the Star – StarBiz, Monday 6^th July 2009.

By Angie Ng

Malaysia will now be able to look forward to more property funds organization and real estate investment trusts (REITs) implementing into the market for the next few months following the liberalization of Foreign Investment Committee (FIC) guidelines for foreign property investors and the aborting of the bumiputra equity condition in public-listed companies.

According to Axis REIT Managers Bhs Chief executive officer-cum-executive director Steward LaBrooy, the removal of the 30% bumiputra condition on listed companies, which hopefully soon be applied in REIT management companies, this would then encourage more industry investors to be involve.

LaBrooy added that the bumiputra equity condition was a holdup to existing REIT managers in forming alliances with strong overseas operators through sales of equity without the major reduction of shareholders’ interest. By this removal of 30% bumiputra condition, it will attract more players through the new alliances that will increase the capital inflows as a result.

He said the deregulation of the FIC would provide the catalyst or renewed interest in the foreign investment in Malaysia’s real estate. Prior to this, any foreign buyer of Malaysian real estate had to go through complicated structures to own and list their Malaysian assets. Moreover, with Malaysia REITs market becoming more well established and the Securities Commission introduction form a business-friendly guidelines for both conventional and Islamic REITs foreign investors will have good reasons to re-enter the market. The move will promote many other private funds to re-consider the market.

“The lifting of the bumiputra equity rule in stocks as well as allowing 100% foreign ownership in fund managers seeking to operate in Malaysia its positive moves that would place Malaysia in a favorable position to attract foreign investors,” Labrooy added. Later he added that as it was now much easier for foreign real estate ownership by wither individuals or property funds, investment trade properties should be able to perform well.

“A lot of new ventures are the commercial or residential, should be able to take off as there will be a need for more quality and REIT-able property projects going forward. At the end of the day, these investors will need an exit plan and REIT will be a good option for them,” he said.

To provide a boost to the market, he said there was a need to promote greater retail interest in REIT investment. Prior to this, there will be road shows held in various states starting with Penang over the weekend to raise a necessity awareness of REIT investment among the local investment community. In addition to investing in REITs, the investors will be given a chance to broaden up their interest in a wide portfolio of property, while REITs provide regular dividend payout that draws a withholding tax of 10% for individual unit holders. Annual yields paid out by the various REITs in the country so far are between 8% and 13%.

Labrooy said as the global financial crisis had yet to bottom out and foreign players would not be coming in immediately, the more liberalized environment was a good groundwork to attract them when the economy turned for the better.

Overseas property companies and funds that are looking for good value investment in the region may be lured to invest in Malaysia for capital appreciation. CapitaLand, which is eyeing a bigger stake in Malaysia’s real estate market, is one of the potential big players. CapitaLand’s REIT, with an initial asset size of RM2bil, was targeted to be the country’s first foreign-sponsored REIT on Burse. The company had intended to inject its three shopping malls in Malaysia – Gurney Plaza in Penang, the Mines Shopping Fair in Seri Kembangan, Selangor, and Sungei Wang Plaza in Kuala Lumpur - into the REIT.

Through its US$30.5mil real estate private equity fund, Mezzo Capital, CapitaLand has invested in a number of high-end residential projects in the country. CapitaLand also owns a 30% stake in the 50-storey Menara Citibank in Kuala Lumpur’s Golden Triangle.