Islamic Real Estate Investment Trust Research Articles

THE SUSTAINABLE PERFORMANCE OF ISLAMIC REITS AND THEIR SOCIAL CONTRIBUTIONS: MALAYSIA AS CASE STUDY.

The institutions that are committed to the Islamic tenets logically have got general sustainableperformance and positive social impacts. Thus, this study aims to evaluate the sustainability inMalaysian Islamic REITs’ performance in terms of dividends distributions, net profit and shareprice. Also, discovering the social contributions of them that often is link to the materialperformance. The methodology will include a mixed quantitative and qualitative case studyapproach to assess the performance and social responsibility of Listed IREITs in BursaMalaysia through a modelling set of questions. From the findings, two main different trendscan be highlighted (improving & deteriorating) relating to Malaysian IREITs' performance.The golden start-up period of Malaysian IREITs persisted only for 5 years in terms of theirpositive financial performance, which it reflected an increase in the net income and raise in theshare price of each fund of them. After 5 to 6 years from the inception, the negative financialperformance generally was noticed especially in share price. Moreover, it can be said thatMalaysian Islamic Real Estate Investment Trusts (REITs) do not make a positive socialcontribution based on the social responsibility activities mentioned in their annual reports. Theimplication is that social responsibility plays a fundamental role in the performance of IslamicREITs (IREITs), and this study highlights the importance of considering their social impacts,which have often been overlooked in previous studies focusing mainly on financialperformance.

Relationship between Real Estate Investment Trusts (REITs) and financial performance of selected investment banks in Nairobi County, Kenya.

Purpose: To investigate the relationship between real estate mutual funds investment and financial performance of selected investment banks in Nairobi County, Kenya.
 Methodology: The study used descriptive research design. The target population was 22 investment banks in Nairobi Kenya whose respondents were 75 investment managers, 297 investment officers, 124 risk officers, and 161 quality assurance officers. Simple random sampling method was used to obtain a sample of 7 investment banks whose 22 investment managers, 89 investment officers, 38 risk officers, 48 quality assurance officers were included. This study used a questionnaire and secondary data collection form to gather data. This study conducted a pre-test at two randomly selected commercial banks branch in Meru County. These banks were housing finance bank and Kenya Commercial Bank. Inferential analysis generated included model summary to test the level of influence, analysis of variance to test hypothesis and regression coefficients to test the study’s model.
 Results: The respondents agreed that there are reliable customer service services that boost client-bank relations which increases the confidence in investing even higher amounts of income towards REITs. (Mean-3.23). Despite that, respondents disagreed that investor’s wealth is able to grow especially due to profitable returns they generate as a result of engaging in real estate investment trusts (mean-2.23). In addition, the respondents disagreed that banks promote cultural and religion inclusivity by including products such as Islamic real estate investment trusts to incorporate Islams (mean-2.45). The model summary indicated that real estate investment trusts had an R-0.589 and an R-square of 0.347. This indicated that real estate investment trusts influenced 35% of financial performance. Durbin Watson’s value of 1.980 indicated a positive auto-correlation. The ANOVA analysis indicated that real estate investment trusts had an F-statistic of 7.033 and significance level of 0.009 which was below 0.05. There was a relationship between REITs and financial performance. The bank’s rate of return was low due to high price volatility. Investor’ high demand as compared to the supply of REITs by real estate sector played a significant effect on its prices. In addition, the study found out most real estate companies had not set out much REITs which made it tricky for investors to reap maximum returns on them.
 
 Unique contribution to theory, policy and practice: Gaps were established on how real estate investment banks would incorporate diversity in their products. For example, the presence of Islamic real estate investment trusts was found to be missing in investment banks due to complicated Sharia laws on how interest should be accrued so that no party loses in the deal (both the banks and the investor). Investment banks management should develop various REITs products which incorporates diversity such as introducing Islamic products. Investment banks should develop partnership opportunities for real estate companies so that they are able to increase their investment products baskets. CMA should extend a hand to investment banks and firms so that they get appropriate prices on various REITs.

Islamic real estate investment trust: comparative study between emirates Islamic REIT UAE and Al Salam Islamic REIT Malaysia

Purpose The Islamic Capital Market (ICM) has witnessed tremendous growth over the years. One of the most interesting growth curves in the ICM instruments is that Islamic Real Estate Investment Trusts (I-REITs). The purpose in this paper is to highlight the concept of I-REIT and to presents a comparative analysis for Emirates I-REIT and Al-Salam I-REIT of UAE and Malaysia to find out the implications of the major differences between the two countries I-REITs. Design/methodology/approach This paper uses the data in the two I-REITs' financial reports from the years 2015 to 2019. A descriptive (Observational design) data analysis approach is used in comparing both I-REITs by focusing on five different variables that include: portfolio, governance, financial performance, Shariah compliance and risk management. Findings The findings offer evidence of key differences between the two countries regarding the I-REITs. The differences found in the implication for all variables that the paper presented, especially the size of the portfolio for each I-REIT along with the Shariah compliance and risk management, Al Salam “Malaysia” used more standard approach than UAE in which the SSB is responsible for setting the guidelines for Emirates REIT. Also, the risk management technique used by the two REITs differs from one another. Practical implications This research paper provides an insight for the capital market sectors as an initiative to improve and develop the ICM to play its important role in the economy. Originality/value This research paper is an initiative to compare and evaluate the implications of major differences between the I-REITs of the two countries only in the light of recent development in the ICM.

The Principles of Malaysia Islamic Real Estate Investment Trust: Contemporary Islamic Core Values

The Islamic capital market operates in parallel with convention capital market in expanding, deepening, and broadening Malaysia financial system. The Islamic Real Estate Investment Trust (Islamic REIT) serves as an alternative Islamic investment instrument to sukuk and shariah compliant stock, which observes Islamic REIT experiencing a significant growth and demand in portfolio property value and Islamic market capitalization. The attractiveness of Islamic REIT has made it to become one of the common real estate investments apart from the physical property investment with a long-term and cheaper capital for property ownership. Likewise, the continual expansion of the Islamic REIT market in Malaysia is making great financial motivation that expands the investment spectrum. Therefore, the need to review the Malaysia Islamic REIT framework to thrive and revitalize structures conforms to the shariah laws and the guideline issued by security commission of Malaysia. This inevitably means the behaviours and operation of sub-Islamic components operating under Islamic financial system need to observe within the rules and principles of shariah laws. Through model of business, investors can invest in an Islamic REIT in the without having to buy, manage, or finance property and income that produced through its various real estate investments.

The Emerging Asia Pacific Capital Markets: Malaysia

Malaysia achieved independence in 1957 and since then has diversified its economy from a predominantly agricultural and commodity-oriented base to one that hosts a robust manufacturing and services sectors. Malaysia has one of the most open economies in the world, facilitating trade and investment activities. In tandem with this open economy is a robust capital market that has seen continuous developments in the past 60 years. The nation’s stock exchange, Bursa Malaysia Berhad, is at the core of the equity capital market. It is home to more than 900 listed companies and entities and features three different markets catering to a broad range of companies. Bursa Malaysia also features a broad range of products including listed equities, commodity futures, exchange-traded funds, and financial options, among other products. The total market capitalization for the exchange stands at USD369.06 billion as of 30 June 2020. Conversely, Malaysia’s bond market is one of the most active in the Asian market. This can be seen from the active MGS (sovereign bond) market coupled with a corporate bond market size that represents over 50% of the country’s GDP. This active bond market has facilitated efficient financing of various economic activities in the country. Malaysia has additionally played a leading role in the sukuk markets. Islamic finance features prominently in the Malaysian capital markets, catering to the needs on both the demand (investors) and supply (issuers) sides. Malaysia prides itself as a hub for Islamic finance and has achieved several global firsts, including the world’s first Islamic real estate investment trust. The rise of fintech and alternative funding have also been embraced fully by the Malaysian regulatory authorities, as demonstrated by the various initiatives to develop this space. Peer-to-peer lending and crowdfunding are seeing increasing traction in line with the changing demographics of the investor base.

A review of Islamic stock market, growth and real-estate finance literature

PurposeThis paper reviews economic and finance research on Islamic investments. In the course of our review, we focus on the following issues: the performance of Islamic stock indexes, Islamic finance–growth nexus and Islamic real-estate investment trust market.Design/methodology/approachThis literature survey consists of two stages such as random and systematic. It begins with a random search of articles with the intention to explore the three different areas of Islamic banking and finance. In order to maintain some level of quality of the literature review, we explored inside citations of articles based on relevant and recent articles from SCOPUS and Web of Science.FindingsThis paper represents an attempt to organise current research on Islamic stock markets, Islamic finance-growth nexus and Islamic real-estate finance: (1) the first prevailing finding is that Islamic stock indices are less volatile than conventional stock indices; (2) most empirical studies regarding Islamic finance–growth nexus focus on the impacts of banking sectors on growth and neglect other segments of the Islamic financial market; (3) based on our review of existing studies, there is no unanimous model for Islamic home financing in Islamic banks.Practical implicationsThe mixed findings in this area hinder the understanding of Islamic investment and prevent identifying trends that support decision-making. Our review provides suggestions for prospective research directions. Most empirical studies regarding Islamic finance–growth nexus focus on the impacts of banking sectors on growth and neglect other segments of the Islamic financial market.Originality/valueThere is no literature review on Islamic finance-growth nexus and Islamic real-estate literature. Therefore, we are going to fill this gap to review these three different aspects of Islamic banking and finance.

Conventional REITs, Islamic REITs and macroeconomic variables in Malaysia: a review

PurposeThe purpose of this paper is to empirically examine the return and dividend characteristics of two different types of Malaysian real estate investment trust (REIT) series, namely, conventional and Islamic, against macroeconomic variables over the period 2011-2017.Design/methodology/approachThe required data are derived from Datastream database. Multiple regression analysis is used to determine the impact of macroeconomic variables on financial performance of 13 Malaysian REIT series.FindingsResults show that the macroeconomic variables are able to predict future returns and dividends of Malaysian REITs. The analysis also suggests that Islamic REITs are seen to be less sensitive to macroeconomic variables and display better portfolio diversification benefits as compared to their conventional counterpart. The ongoing implications for large-cap and small-cap REITs are also highlighted.Research limitations/implicationsThe main limitation of the study is the small percentage of Islamic REITs sample due to limited period of observation available. However, the two Islamic REITs included are representative of Islamic REITs in Malaysia as both of them are listed in the Bursa Malaysia with asset size and market capitalization values more than RM1bn.Practical implicationsThe results of this study may serve as a useful input for financial market players on making strategic business decisions especially with regards to differences between conventional and Islamic REITs characteristics.Originality/valueThe main contribution of this paper is to explore the relationship between REITs and macroeconomic factors on a unique capital market (Malaysia) that allows comparison between conventional and its Islamic counterpart.

MACROECONOMIC SHOCKS AND LEVERAGE EFFECT ON MALAYSIAN ISLAMIC REAL ESTATE INVESTMENT TRUST STOCK RETURN

Over the past decade, Malaysia’s Islamic capital market is emerging in achieving a total worth of 1.9 million or 61 percent of the overall Malaysian capital market as per December 2018. The establishment of Islamic Real Estate Investment Trust (REIT) gained a demand from investors in the Islamic capital market that claims to be a safe investment as it attached to the real estate to generate the source of income. Nevertheless, the Islamic REITs are structured and operating in accordance with the Shariah principle laid out by the Malaysia securities commission, as it is beneficial to the potential investors given its high liquidity and diversification opportunity compared to investing in physical property. In addition, although Islamic REIT is deemed to have a stable return given the real estate portfolio, there is still risk inherent such as an impact of the external forces. Therefore, the impact of macroeconomic factors shocks towards Islamic REITs is significant to the investors, policy makers and government to outline their relationship and facilitate their future growth. However, the evidence published on the listed Islamic REITs stock return in Malaysia is very limited and has seldom been modelled. The Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model and Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH) model employed in this study to analyze the Islamic REIT stock return. The empirical finding show that the Islamic REITs exhibit an unstable behavior and volatility would take a longer time to respond to a shock in the market. Nevertheless, the magnitude of changes in price level of Islamic REITs tends to be greater in responding to new market information. Furthermore, it points out that the leverage effect of all the macroeconomic shocks towards Axis REIT and mix macroeconomic finding leverage effect for Aqar REIT and KLCC REIT in Malaysia. Nutshell, this study provides a discussion of Islamic finance to set a basis for Malaysian Islamic REIT, the regulatory framework, and conceptual model property trust funds in Malaysia.

The Financial Performance of Islamic Real Estate Investment Trusts (REITs) in Malaysia

Islamic real estate investment trusts (iREITs) is a fund or a trust that owns and manages income producing commercial real-estate which complied with Shariah. The aim of the paper is to study the recent performance of four iREITs in Malaysia, namely Al-'Aqar Healthcare REIT, Axis REIT, Al-Salam REIT and KLCC REIT, from 2012 until 2016. Trend analysis is adopted to analyse the performance focusing on dividend distribution per unit (DPU) and net asset value (NAV). Based on the findings, both DPU and NAV performance show a good track record and this is evident in the case of Al-A«Aqar Healthcare REIT, KLCC REIT and Al-Salam REIT. Generally, it can be concluded that iREITs provide an attractive investment tool as it generates steady income in the form of dividend to the shareholders, while at the same time backed by quality underlying assets.

Literature Review on REITs and Islamic REITs and Lessons Learned for Islamic REITs in Indonesia

Real Estate Investment Trusts (REITs) as a new instrument in many capital markets is an interesting topic. Although not yet to be popular globally, REITs has gained popularity as flexible, cost efficient and profitable real estate investment vehicle for investors as well as provide liquidity for real estate sector, especially in advanced markets like in US, Japan and Singapore. The emergence of Islamic Financial Institutions (IFIs) coincided with increasing popularity of REITs open opportunity for development of Islamic REITs (I-REITs) as competitive but sharia compliant REITs compared to the conventional one. The dominance of Malaysia as market player of I-REITs as well as many underresearched areas open opportunity for betterment of the current I-REITs markets. This paper is a literature review with two objectives. First, to compile and review existing articles on REITs, both conventional and Islamic, and second, to gain lesson learned as material for development of I-REITs in Indonesia as ultimate goal. It is expected that this literature review will generate ideas for future development proposals on I-REITs, particularly in Indonesia. This study found that literature on I-REITs is relatively thin compared to its conventional counterparts, and Indonesia is still left behind in I-REITs development despite regulatory framework is already in force. Therefore, further effort to promote supply and demand of I-REITs in Indonesia should be taken as a way to diversify Islamic investment avenues for sharia oriented investors.

A Preliminary Analysis of Islamic Real Estate Investment Trust (I-REIT) Volatility as a Potential Waqf Development

The development of waqf institutions is a significant attribution to ensure a sustainable and progressive prosperity to the Muslim socio-economic. The aspiration of the waqf development is to preserve the benefits of the beneficiaries and to all the human kind. However, the issues of the fund shortage are one of the tough issues that need to be solved. I-REIT (Islamic Real Estate Investment Trust) is one of a suggestion of diversification as an alternative solution to the aspect of fund constraint. Therefore, this paper attempts to examine the level of I-REIT volatility in comparison to typical REIT as a preliminary experiment. By using a conventional standard deviation or variance analysis of selected I-REIT and REIT counter, a preliminary result shows that I-REIT has a lower volatility impact than the REIT. This less-impact I-REIT to the market exploitation justifies that the Islamic capital market instruments of Islamic real estate investment trust (I-REIT) is an alternative potential waqf mechanism in developing and advancing waqf property in Malaysia. Thus, this study proposes the initiation of the alternative waqf of I-REIT in enhancing the dynamism of waqf practice in Malaysia.

The Role of Macroeconomic Variables in the Islamic Real Estate Investment Trusts (I-REIT) Market in Malaysia

This research aims to analyse the presence of short and long term relationships between Islamic real estate investment (I-REIT) return and macroeconomic variables in Malaysia. To conduct this study, the research model adopted an estimation of Vector Auto Regression (VAR) method. The analysis employs monthly data from January 2007 to December 2013. The result shows that there is a significant positive relationship between the Islamic real estate investment trust and Industrial Production Index variable, but significant negative relationship with Islamic Inter Bank Rate and Exchange Rate of Malaysian Ringgit - United State Dollar variables. On the other hand, the I-REIT shows an insignificant negative relationship with the Consumer Production Index, FTSE Bursa Malaysia Emas Shariah Index, and M3 variables. The Granger causality analysis shows that there is a causal relationship between the variables of Consumer Production Index, Industrial Production Index, M3, and I-REIT.

A review of efficiency measures for REITS and their specific application for Malaysian Islamic REITS

PurposeThis paper aims to present a conceptual model on the efficiency of Islamic real estate investment trusts (I-REITs) available in Malaysia. The key difference between the Islamic and their conventional investment vehicle part is mainly its own Shariah framework. For instance, I-REITS must comply with the requirement of Securities Commission Act 1993 as well as the Guidelines on Islamic Real Estate Investment Trusts (Islamic REITs Guidelines).Design/methodology/approachThe paper reviews and synthesises the relevant literature on the performance analysis and efficiency measurements of REITs. The paper then develops and proposes a conceptual model to measure the efficiency of Malaysian and Islamic REITs.FindingsThe paper identifies and examines the appropriate methods and instruments to measure the efficiency in relation to the risk and profitability of I-REITs. The efficiency measure is important for the fund managers to maximise the shareholders’ return in an investment of property portfolio as well as proposing the best way to allocate resources efficiently.Research limitations/implicationsThis is a preliminary review of current work that identifies the issues that will be addressed in future empirical research. The authors will be undertaking this future empirical research in measuring the efficiency of Malaysian real estate investment trusts (M-REITs), particularly the I-REITs, using the non-parametric approach of data envelopment analysis.Originality/valueTo date, there has been very limited research on the efficiency measurement of I-REITs. The current analysis of REIT has been focused on traditional non-Islamic funds. This paper will review and discuss the current literature on efficiency measurement to determine the most appropriate approaches and methodologies for future application in performance analysis of efficiency measure for Malaysian and Islamic REITs.

How Efficient are Alternative Financial Institutions? An Empirical Investigation of Islamic REITs in Malaysia

The literature shows that despite Sharia-compliant restrictions, Islamic real estate investment trusts (REITs) exhibit higher financial returns than conventional trusts. However, efficiency analysis that directly assesses the effect of Sharia-compliant is lacking. This paper provides the first such analysis of Malaysian REITs from 2007 to 2015. The findings show that Malaysian REITs can reduce their inputs consumption by 35.8% without reducing outputs, implying a significant potential for improvement. Nevertheless Islamic REITs achieve higher efficiency levels than conventional REITs, indicating that the Sharia-compliant effect is positive. The findings suggest that REITs can increase efficiency through good governance, capitalization, and diversification.

Determinants of Islamic Real Estate Investment Trust Performance

Determinants of Islamic Real Estate Investment Trust Performance

International Real Estate Review

Real estate investment trusts (REITs) are a niche alternative investment class. Since their 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 the 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 proxies having a stronger impact than short-term proxies. The results from a 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 not significantly driven by returns in regional REIT markets. These findings possibly imply that M-REITs (i) subscribe more to the characteristics of equity than those of bonds, (ii) are not 'pure' yield-play instruments, (iii) are often regarded as long-term investment, and (iv) may not be fully integrated with global and regional REIT markets.

ADDRESSING GOVERNANCE ISSUE IN ISLAMIC REAL ESTATE INVESTMENT (I-REITs): A CASE STUDY FOR OIC COUNTRY -MALAYSIA

The implementation of good governance practices for Islamic products and services is significantly important in order to ensure its sustainability in the long-run. Furthermore, the strong regulatory framework of governance structures which is based on Shari’ah principles can help to reduce fraud, dishonesty and other unethical practices in doing businesses. Nevertheless, for a new Islamic product such as Islamic real estate investment trust, lack of specific standards and guidelines stated for the appointment of Shari’ah Advisor (SA) may distort the optimum growth and future development of this product. Thus, this paper examine the practice of selecting Shari’ah Advisory Committee by Islamic REIT companies in Malaysia using five standard governance framework which are independence, confidentiality, competence, consistency and disclosure. The data are taken from the Islamic REITs’ companies’ annual reports and interviews with relevant authorities such as Bank Negara Malaysia and Securities Commission Malaysia. Results from this study suggest that information of Shari’ah Advisory Board/Committee members and qualifications are not properly disclosed in the annual report and the term of appointment of Shari’ah Advisory Committee in some of the REIT companies is too long. In addition, the elements of Islamic auditing or reporting are vague. These factors are significantly important as they show the important role of good governance in ensuring the faith of investors is not being compromised and the Islamic REIT is Shari’ah compliant. Thus, it can be concluded that more effort need to be put forward in producing a good Islamic governance framework for Islamic REIT.

THE PERFORMANCE AND SIGNIFICANCE OF ISLAMIC REITs IN A MIXED-ASSET PORTFOLIO

Islamic Real Estate Investment Trusts (I-REITs) have been established to enhance the Islamic Capital Market. Almost 10 years of establishment of I-REITs, it is interesting to study the performance of this Islamic property investment vehicle because it is a potential and unique asset class that not fully explored. This paper examines the risk-adjusted performance analysis and correlation analysis between I-REITs in a mixed asset portfolio. The time period of study is from November 2008 to December 2014. I-REITs were compare in a mixed asset portfolio consists of shares and bonds. The results show that I-REITs outperform both shares market and bonds market. While I-REITs give high diversification benefits for the share and bond investors with low correlation between I-REITs, shares and bonds.

Malaysia REIT: First Decade Development and Returns Characteristics

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.

Systematic Risk of Islamic REITs and Conventional REITs in Malaysia

Executive SummaryIn this paper, we evaluate the systematic risks of Islamic real estate investment trusts (REITs) and conventional REITs in Malaysia for the period from August 3, 2005 to December 19, 2014. Our results show that IREITs have lower systematic risks than other conventional REITs. The results are consistent when stochastic betas are estimated using time-varying coefficient models. We also find that new IREIT entry creates significant risk reduction effects for the conventional REIT markets. When we test the effects of the conversion of Axis REIT from a conventional REIT to an IREIT, we find that the systematic risks of Axis REIT significant reduce between the periods “before” and “after” the conversion. The findings imply that the lower betas of IREITs could protect IREIT investors against stock market volatilities that could not be diversified away.