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Thursday, October 21, 2010

Why bother investing in Malaysian REITs?

Today, i read an article on The Star by Mr. Ooi Kok Hwa regarding REITs. Take a lot at the article here.

What makes me furious is that Mr. Ooi who is an investment adviser and managing partner of MRR Consulting,has misled the public by not discussing the real issues in Malaysian REITs(MREIT).I guess a consultant is still a CONsultant.

MREIT is full of crap properties.If you look at their portfolio,most of these properties are actually dumped by developers/owners since they cannot sell their buildings in the market to professional institutional investors.For example,SUNWAY REIT (which i wrote earlier) is one of them.Creating a REIT is the best way for developers/owners to either 'sell their building at higher valuation' or 'unload their poor quality properties to the market'.

Most of analysts would reasoned that the owners of the buildings which are pumped into REIT want to raise fund to capitalize other opportunities.But these crooks can actually refinance these buildings.So,why go through the hardship to create a MREIT?Because the bankers refuse to refinance these properties at crazy valuation.

So,these crooks will repackage their buildings by bringing in tenants through creative leasing contract to boost the rental income.Property manager will help to make up their properties so that the net operating income is marketable.There are a lot of ways to tweak the buildings to improve the performance for a few years. 

Some developers actually treat their own REIT as a dumping site.If they want to sell their buildings at higher valuation,they can pass it to their own REIT.Who cares if the total office space in KL has reached its oversupply condition.Just build them and sell to their own REIT!It's a fool proof business model for developers.

MREIT is very far away to be compared to the actual REITs in US,UK and Australia.In these countries,REITs can directly involve in property development and become a developer.They can leverage up to boost great return for their investors.

Which type of REIT is better for investment?
1) A REIT which buys land,construct the building at cost,sell some % and keep some for recurring income and manage & control the building management.OR
2) Just like MREIT,which have to buy properties at market value from some crooks and manage it for recurring income?

Generally,REIT is very liquid but that only applies to overseas REITs.Whoever said MREIT is liquid must be copying his work from some foreign article without using his brain.A quick check with the MREIT's daily volume will show you the reality.MREIT is so illiquid and you may have to sell at loss, below their NAV to get back your $$$.Compare to MREIT,you may find more liquidity investing in an actual condominium next door nowadays. 

My 2 cents-->If I want recurring dividend,i would rather buy BJTOTO.Low cost and simple business model which will still makes $$$ when you let an idiot run the company.

2 comments:

  1. hey man, thanks for the write up. am studying reits. need to clarify though about volume of reit in bursa. maybe the vol is not big enough for foreign fund managers but looking at it today, majority of the reits have enough volume. comfortable enough for a investor with 6 figure to exit. too say that it is illiquid is an overstatement, imho.

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  2. When you look at REIT,you should look at the volume for a longer period of time,not 1 day or 2 days.Most investors buy and hold REIT for dividend return,so they will hold it for very long term.But REIT nowadays are very smart in increasing the volume(BETA) by issuing new shares to raise capital.Investors buy REIT to reduce volatility in their investment but in order to attract retail investors,the management must make REIT more liquid & more volume and hence making REIT more volatile.Volatility is the name of the game whether you're buying SUPERMAX or MREIT.You cannot avoid it.

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