Listed Property Trusts in Malaysia

Abstract Malaysia was the first Asian country to develop listed property trusts as an effective indirect real estate investment vehicle in 1989. This article presents an overview of the development of the listed property trust sector in Malaysia, with performance analysis over 1991-2000. Local structural and regulatory factors are identified that have contributed to the slow development and poor performance of property trusts in Malaysia. Strategies are articulated that would contribute to the ongoing development of the property trust sector as an effective indirect real estate investment vehicle in Malaysia, as well as in other Asian countries, such as Japan, Singapore and Korea. Introduction Malaysia is one of the major Asian tiger economies, having enjoyed strong economic growth exceeding 8% in each year of 1989-1997 (D'Arcy and Keogh, 1999; and Loh, 1997). Only the Asian economic crisis of 1997-1998 has slowed this economic growth. Importantly, since 1999, Malaysia has recovered from this Asian economic crisis, with GDP growth in 2000 projected at 5.8%. Traditionally, Asian investors have sought stockmarket real estate exposure via listed real estate companies involved in real estate investment and real estate development. Despite the international success of real estate investment trusts (REITs) in the United States and property trusts in Australia as effective indirect real estate investment vehicles, Malaysia is the only Asian country with a history of a listed property trust market. Listed property trusts have been established in Malaysia since 1989, with the other Asian countries of Japan, Singapore and Korea only now beginning to establish REIT markets, largely as a consequence of the Asian economic crisis in 1997-1998. The purpose of this research is to examine the development of listed property trusts in Malaysia, assess their performance and real estate portfolio diversification benefits over 1991-2000, and identify strategies needed for their ongoing development as effective real estate investment vehicles in Malaysia. The next section identifies the development of property trusts in Malaysia, and the local structural and regulatory factors that have contributed to the slow development and poor performance of listed property trusts in Malaysia, The Methodology section identifies the listed property trust data, as well as the corresponding stockmarket and real estate market data sources. The Malaysian Property Trust Performance Analysis section presents the performance analysis for Malaysian property trusts over 1991-2000, highlighting the portfolio diversification benefits of Malaysian property trusts. In the Ongoing Implications for Malaysian Listed Property Trusts section, strategies are also articulated that would contribute to the ongoing development of the property trust sector as an effective indirect real estate investment vehicle in Malaysia, as well as the implications for other Asian countries (e.g., Japan, Singapore and Korea), that are now introducing REIT-type vehicles into their local real estate investment markets. Development of Listed Property Trusts in Malaysia Background The regulatory framework for listed property trusts in Malaysia was approved by the Central Bank of Malaysia in 1986, with the principal legislation governing their establishment and operation being the Companies Act 1965 and the Securities Industry Act 1983. Specific Securities Commission guidelines for property trust funds were developed in 1991 and revised in 1995. The first listed property trust in Malaysia was established in September 1989 (Arab Malaysian First Property Trust), with further property trusts established in November 1989 (First Malaysia Property Trust) and December 1990 (Amanah Harta Tanah PNB). No further property trusts were listed until 1997 (Mayban Property Trust Fund One), with this property trust having previously been an unlisted property trust since 1990. …