Investing in Malaysian REITs for Halal Income
KLSE listed real estate investment trusts include five that are Shariah compliant.
Malaysia probably presents the most options for Muslim investors. Over 60% of its capital market is Shariah compliant. That includes real estate investment trusts, or REITs: out of 19 listed on the Main Market of Bursa Malaysia, five REITs have been certified halal.
Property investing is innately Islamic because it confers ownership of physical assets. REITs specifically make commercial real estate more accessible to retail investors. Guaranteed, almost always high, dividend (or distribution) yield — as a source of regular halal income — is the biggest draw.
ALAQAR (5116)
In August 2006, Al-‘Aqar Healthcare REIT became the world's first publicly traded Islamic REIT. Its initial portfolio of six properties has grown to 23 in healthcare and wellness industries. The REIT is managed by a subsidiary of Johor Corporation, a government-linked development institution.
Annualised distribution yield:
2019: 10.17%
2020: 6.72%
2021: 5.20%
ALSREIT (5269)
Al-Salam REIT hails from Johor Bahru, the second-largest city in Malaysia, with a legion of properties mostly in food and beverage retail. The trust shares the same manager with ALAQAR, although performance has been vastly different which has to do with the composition of portfolios.
Annualised distribution yield:
2019: 5.86%
2020: 3.78%
2021: 4.74%
AMEREIT (5307)
AME REIT, listed in September 2022, is the latest addition to a list of halal REITs in Malaysia. It has started with a portfolio of 34 industrial properties and dormitories belonging to its parent, property developer AME Elite Consortium. All buildings are fully tenanted at present, with multinationals leasing over 90% of total net lettable area.
AXREIT (5106)
Axis REIT has the distinction of being Malaysia’s first ever REIT, listed in August 2005. Since then, it has accumulated a motley collection of 62 properties throughout Malaysia, most prominent of which are logistics warehouses and manufacturing facilities.
Annualised distribution yield:
2019: 5.23%
2020: 4.31%
2021: 4.89%
KLCC (5235SS)
KLCC REIT is Malaysia’s largest REIT by market capitalisation, with a unique portfolio of very recognisable assets: PETRONAS Twin Towers — occupied by the national oil producer, Menara ExxonMobil and Menara 3 PETRONAS. The latter includes the capital’s most premier shopping centre. The REIT comes as part of a stapled security with KLCC Property Holdings.
Annualised distribution yield - per stapled security:
2019: 4.81%
2020: 4.24%
2021: 5.16%
Takeaway
Malaysian REITs are overall stable, and Islamic REITs among them are not much different. If anything, they are more robust thanks to additional inflows from Shariah compliant funds and generally low gearing ratios.
In this particular list, Al-‘Aqar Healthcare REIT stands out because of a niche in medical real estate and the highest dividend yield currently, of over 6% which is about the average of conventional and halal REITs taken together. In recent years the country’s private health providers, including ALAQAR’s KPJ Group of Hospitals, have been generating significant interest from frugal tourists and discerning locals alike.
KLCC REIT is worth highlighting as a long-profitable stalwart with growing dividends. It is also one the few REITs, halal or otherwise, that have integrated sustainability into performance assessment. KLCCP Stapled Group yielded 5.66% as at 31 December 2022, which compares favourably to rates offered by common benchmarks such as the long government bond and fixed deposits. For perspective: the FTSE Nareit All Equity REITs, a US index, averaged 3.96% in January.
Disclaimer: Nothing you read on Tayyib Finance constitutes financial advice. Nor is there a guarantee of Shariah compliance of any particular stock or fund at any particular time, since ‘Shariah compliance’ is fluid depending on the provider of judicial opinion and must be regularly affirmed. Do your own research.
To buy REITs in Malaysia, sign up with any of the many affordable local brokerage firms. These also double as stockbroking companies that handle new investors’ account registration with the stock exchange authority. International brokers can also handle REIT transactions albeit for much higher fees. Note that Malaysia does NOT charge a withholding tax on dividend income.