performance of property trust companies in malaysia

performance of property trust companies in malaysia -...

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1 PERFORMANCE OF PROPERTY LISTED COMPANIES IN MALAYSIA: 1996 - 2007 Nur Adiana Hiau Abdullah * Wan Marazah Binti Wan Zahari Abstract This study examines the performance of listed property companies in Malaysia within three sub-periods: pre-crisis, during crisis and post-crisis. The period of study is from 1996 to 2007. By using Sharpe Index, Adjusted Sharpe Index, Treynor Index, Jensen Index and Adjusted Jensen Index, the result shows that the performance of listed property companies over-performed the aggregate market (Kuala Lumpur Composite Index KLCI) and the Kuala Lumpur Property Index (KLPI). Further examination on the performance of the property companies in the three sub-periods shows there was a significant difference in the performance of the property listed companies as compared to the KLCI and KLPI before, during and after the 1997 financial crisis. An obvious observation in the result is that most of the companies listed under property sector as well as the aggregate market as a whole and the property index were showing an average negative return. This would mean that investors and fund managers would need to take extra caution to include property stocks in their portfolio. As for the regulators, more efforts needed to be done to boost this sector. JEL Classification: G11 * College of Business, Universiti Utara Malaysia, 06010 UUM Sintok, Kedah. Email: [email protected] ; Fax: 04-9285645; Tel: 04-9285640
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2 I. INTRODUCTION Prior to early 1997, a rapid growth in bank loans resulting in increasing loan exposure to non- tradable sectors such as property development and construction, consumption credit and purchases of stocks (Ariff et al., 1998). Property prices increased by 12% to 26% in the period 1991 and 1992; and between 13% to 18% in the period 1995 and 1996. The urban centres like the Klang Valley and Johor Bahru experienced double-digit property price inflation of between 10% to 17% yearly in the period 1994 to 1996 (Bank Negara Malaysia, Monthly Statistical Bulletin). However, in April 1997, in order to control the sharp rise in asset prices, Bank Negara Malaysia imposed a limit of 20% of total outstanding loans extended to the property sector with an exclusion of houses below RM150,000 (Bank Negara Malaysia Annual Report, 1998, page 21). Then, starting from the final quarter of 2000, the Malaysian economy had gradually improved (Riggs, 2000). The property industry leaders reviewed their long-term and short-term positions in the property market. As reported in Emerging Trends in Real Estate 2007, today most of the investors believe that the property industry in Malaysia offers better risk-adjusted returns as compared to other industries. Property is more heterogeneous in nature compared to other asset classes; there are substantial differences in the risk and return characteristics even among the same property types. As the property market moves from a comfortable equilibrium to a riskier future outlook for supply and demand balances, investors need to embark upon a careful review of the performance characteristics of each property held in its portfolio.
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