As mentioned earlier on articles on the investment in REITS( refer personal finance section), the question to raise is whether it is conducive to invest in the Malaysian REITS.

According to the analysts, the current scenario for investing in REITs seems to be good for the following reasons:

1. Favourable demand-supply dynamic. The average prime office rental rate rose from Rm4.50 psf in 2005 to Rm5.00-7.50 psf for well-located commercial properties in Kuala Lumpur except Petronas Twin Towers which commandered a higher premium of more than Rm10 psf. Moving forward, there should be an upward swing in rental ( say 10% per annum for 2007-2008). Capital values for prime office space are also set to breach Rm700 psf in the next 12 months from the current Rm630-650 psf.
2. Asset reflation play. This is in view of the expected stronger Ringgit, low interest regime and where the Malaysian commercial property prices are at a steep discounts to Hong Kong, Singapore and Shanghai. Incidentally, Kuala Lumpur’s average rental rate of USD1.1 psf is at 76% discount to Singapore and 86% to Hong Kong.
3. Attractive yeild spread. The average gross yield for Malaysian REITs is at 6.8% against the backdrop of low domestic interest rate,fixed deposits, EPF return, Merdeka Bonds.
4. Earnings accretive acquisition. The relaxed borrowing ceiling for Malaysian REITs from 35% to 50% in 2006 will boost acquisitions. As REITS revalued their properties, this will then translate to a higher borowing limit. Assuming that the average net yield of 6% for commercial properties in the Klang Valley, compared to average borrowing cost of 4% for Malaysian REITs, we would still have a positive carry of 2% that could be returned to investors as dividends.

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