Published October 22, 2009

Islamic Reits could get boost from KL

Tomorrow's Budget likely to offer goodies to Islamic capital markets

By PAULINE NG
IN KUALA LUMPUR

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OWING to a pick-up in property sales, analysts do not expect the national Budget to be tabled tomorrow to hold goodies for the sector, except perhaps for Islamic real estate investment trusts (Reits), given that Syariah financing is a key area of promotion for the government.

After an initial bout of activity, Malaysian Reits have become under-invested on the lack of size, liquidity, investor understanding and news flow.

Maybank-IB analyst Ong Chee Ting sees Islamic Reits as a 'potential beneficiary' of the Budget because of the government's aspirations for Malaysia to be an Islamic capital market hub.

Currently only three out of Malaysia's 11 Reits are Syariah-based, he noted, and incentives at both the Reit and Trust manager levels to promote the setting- up and development of Islamic Reits could act as a catalyst for the sector.

If Budgets of the previous years are any indication, the goodies directed at the Islamic capital markets are likely to continue.

In the 2009 Budget, for example, the government announced a tax exemption on fees earned by institutions for activities related to the bond market, such as the arranging, underwriting and distribution of non-ringgit sukuk issued in Malaysia but distributed outside the country. Moreover, profits from the trading of non-ringgit sukuk issued in Malaysia were also tax exempted.

The year before, tax incentives were proffered for existing stockbrokers to set up Islamic stockbroking subsidiaries.

Even so, property players are keener for incentives to be extended to all Reits to revive interest in the sector. After an initial bout of activity, Malaysian Reits have become under- invested on the lack of size, liquidity, investor understanding and news flow.

The scrapping of a planned Reit of CapitaLand's retail assets in Malaysia, after the company decided to inject the malls into a bigger retail portfolio which is to be listed on the Singapore Exchange, was a recent blow.

Sunway City, another potential Reit candidate, has long talked about establishing one but is still considering its options.

More attractive incentives might sway developers with sizeable properties such as KLCC Property and IGB - both owning assets in excess of RM10 billion (S$4.1 billion) - and Sunway to jump in with a Reit and list it on Bursa Malaysia.

The size, depth and liquidity of these Reits would be welcomed given that the existing ones are too small or illiquid. The biggest, with assets of some RM1.5 billion, is Starhill Reit, but even it attracts little investor interest.