Malaysia REIT: First Decade Development and Returns Characteristics

Abstract

Real estate investment trust (REIT) is a niche alternative investment. Since its introduction in Asia at the turn of the millennium, the REIT market in the region has experienced phenomenal growth. In particular, the Malaysia REIT (M-REIT) market capitalisation has seen a spectacular growth of close to 20 folds from its inception in 2005 until end of 2013. This paper chronicles the development of the M-REIT market which is rather unique as it provides a common platform for the existence of both conventional and Islamic REITs. Empirical tests are also conducted to uncover the returns characteristics of the M-REIT market. M-REIT returns are significantly correlated with domestic stock markets but only weakly correlated with changes in interest rate, with long-term proxy having stronger impact than short-term proxy. The results from correlation analysis are further confirmed by regression testing which shows that M-REIT returns are most significantly driven by domestic stock market returns while only mildly by changes in interest rates and are not significantly driven by returns in regional REIT markets. These findings possibly imply that M-REITs (i) subscribe more to equity characteristics than bonds, (ii) are not ‘pure’ yield-play instruments, (iii) often regarded as long-term investment and (iv) may not be fully integrated with global and regional REIT markets.