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1 THE NEW REAL ESTATE INVESTMENT TRUSTS IN MALAYSIA: LESSONS FROM LISTED PROPERTY TRUSTS Janice Y.M., Lee Hishamuddin Mohd Ali Chyi Lin, Lee Centre for Real Estate Research and Dept of Property Management University Technology Malaysia, Skudai ABSTRACT Institutional investors hold significant equity levels in overseas Real Estate Investment Trusts (REITs) and evidence reveals that their active participation brings tremendous benefits to the REIT markets. In Malaysia however, the level of institutional investment have historically been rather poor since the establishment of the first Listed Property Trust (LPTs) in 1989. Nowadays, interests in REITs are renewed in Malaysia due to encouraging government incentives and the revised regulations in Securities Commission Guidelines 2005. Axis REIT is listed and a number of REITs are planned for listing by corporations with large property portfolios in the near future. As the investment market welcomes exciting new opportunities, it is timely to consider the needs of institutional investors in Malaysia on the new REITs. This paper examines the reasons of lukewarm response from institutional investors in LPTs and their desirable investment conditions for participating in the new REITs. Finally, the intended actions from corporations planning to list REITs are obtained in response to the institutional investors’ needs. The findings from the paper depicts that the thin trading volume of LPTs, small market size of LPT market and slow capital appreciation are the main reasons deterring institutional involvement in LPTs market. Keywords: Real Estate Investment Trusts, Institutional Investors, Malaysia 1.0 INTRODUCTION Real Estate Investment Trusts (REITs) are investment vehicles to enable flow of funds from investors to the real estate sector of the economy. REITs investors aim to enjoy “…real estate return and portfolio objectives while retaining the investment liquidity provided by the secondary market for REIT shares” (Corgel, et al. 1995). The importance of realizing an active REITs market in Malaysia is evidenced in the 2004 Budget announcement that the government will set up property unit trusts so that small investors can invest in the local property sector. This is echoed in the following 2005 Budget
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2 when efforts were called to enhance liquidity in the real estate sector to increase its contribution to economic development. Favourable tax treatment for REITs were proposed alongside and with the revised Securities Commission Guidelines on REITs in January 2005, Malaysia has since witnessed the launch of Axis REIT in August 2005 together with a slew of REIT listings in the pipeline by corporations with substantial real estate holdings. Prior to 2005, Malaysia has in existence 3 Listed Property Trusts (LPTs)
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