There are many ways to build an investment portfolio and grow your wealth. Some of the safest instruments include fixed deposits and Government bonds, and you can take more risks by investing in stocks or rental properties. But, if you’re looking for a way to earn a relatively stable income without the daily stress of monitoring stock price movements or managing physical properties, Real Estate Investment Trusts (REITs) might just be the perfect addition to your portfolio.
In Malaysia, REITs are a popular and hassle-free way for everyday investors to access the real estate market. With just a small initial capital as low as RM100, you can start investing in malls, office towers, hotels, and even industrial warehouses.
Read Also: Guide To Investing In Stocks In Malaysia
What Are REITs?
A REIT is a company that owns, operates, or finances income-producing real estate. In Malaysia, REITs are listed on Bursa Malaysia, and they are regulated by the Securities Commission Malaysia. By law, Malaysian REITs are required to distribute at least 90% of their taxable income to shareholders annually, making them an attractive option for income-seeking investors.
Some familiar REITs in Malaysia include:
- IGB REIT – Owner of Mid Valley Megamall and The Gardens Mall
- Sunway REIT – Diverse portfolio including malls, hotels, and hospitals
- Pavilion REIT – Owner of Pavilion KL Mall and other retail properties
- Axis REIT – Focuses on industrial and logistics properties
Why You Should Consider Investing In REITs?
There are a few compelling reasons why REITs are worth considering:
Regular Income Stream
Because of their mandatory dividend payout structure, REITs are known for providing consistent income. Many Malaysian REITs offer dividend yields between 5% to 7% per annum, which is higher than typical fixed deposits or government bonds.
Potential Hedge Against Inflation
Real estate tends to perform better in inflationary environments because property rental rates and values generally increase over time – alongside inflation. This can help preserve the purchasing power of your income.
Diversification
REITs give you a simple way to add real estate exposure to your portfolio, beyond just stocks and bonds, without the need for a huge capital outlay.
Liquidity
Unlike physical properties, REITs are traded on stock exchanges. This means you can buy and sell them easily, just like any other stocks.
How To Invest in REITs?
Investing in REITs (Real Estate Investment Trusts) on Bursa Malaysia is quite simple, very much like buying and selling regular stocks. Here’s a quick breakdown of the steps:
Step 1: Open a Central Depository System (CDS) account
First, you’ll need a CDS account, which acts like a bank account but for your investment holdings. This account keeps your REIT units safe and organised. You can easily open one through any licensed broker in Malaysia.
Step 2: Set up a trading account
After your CDS account is ready, you’ll also need to create a trading account with a brokerage firm or remisier. This account lets you place buy and sell orders for REITs on Bursa Malaysia. It will be easier for you to access to your investment portfolio through apps and website as brokers offer online platforms.
Note that if you intend to invest in overseas-listed REITs, including in Singapore, Hong Kong and the US, you may be able to skip the first step and trade directly through your brokerage firm. To invest in Malaysian REITs, you can consider reading this article to understand the brokerage commissions structure, before investing.
When trading REITs, you’ll need to factor in several fees, such as brokerage fees, stamp duty, clearing fees and sales and service tax (SST).
Step 3: Deposit funds into your account
Before you can start buying REIT units, make sure to top up your trading account with sufficient funds. These funds will be used to pay for any purchases you make.
Step 4: Start trading REIT units
Once your accounts are funded and active, you can begin buying and selling REIT units during Bursa’s trading hours. REIT prices move in real-time just like stocks, and you can monitor them easily through your broker’s platform.
Earning A Steady Income Stream From Blue-Chip REITs
If your goal is to build a reliable and relatively predictable passive income, focusing on blue-chip REITs, those with high-quality assets, strong tenants, and long track records can help.
Some characteristics to look out for in blue-chip REITs include:
- High-Occupancy Rates: Generally above 90%
- Strong Sponsor Backing: Well-established parent companies, providing a potential pipeline of properties that the REIT can acquire over time
- Stable Dividend History: Consistent payouts even during downturns
- Diversified Portfolio: Reduces dependency on any single tenant or sector
In Malaysia, IGB REIT and Sunway REIT are often regarded as more “defensive” choices because of their prime assets and strong financials. Historically, they’ve continued to pay dividends even during tougher economic periods like the COVID-19 pandemic.
For investors who prefer a more hands-off approach, you can also consider buying REIT ETFs (Exchange-Traded Funds), which give you exposure to a basket of REITs, though options are still relatively limited on Bursa Malaysia.
Compelling For Its Passive Income, But Remember The Risks Involved
REITs offer a compelling way to earn passive income, especially if you’re looking for something that provides better returns than a savings account without the stomach-churning volatility of growth stocks.
By selectively investing in blue-chip REITs, and platforms like IBKR if you wish to expand internationally, you can build a steady income stream that complements your overall financial goals.
As always, remember that while REITs are generally considered lower risk, they are not risk-free. Factors like rising interest rates, economic downturns, and property-specific issues can impact returns. A well-researched, diversified approach will always be your best friend in the world of investing.
Read Also: Malaysian Investors’ Guide To Opening An Account With Interactive Brokers (IBKR)
Follow Us On Telegram & Instagram!
Join our Malaysia Telegram channel (@dollarsandsensemy) and follow our Malaysia Instagram Page (@dnsmalaysia) as we bring you the latest finance content in Malaysia!
