When I was first exposed to the concept of passive real estate investment as opposed to direct real estate investment, I was rather hesitant to participate because I was looking at quick gains. I am not talking about purchasing properties, renting them and sell them later at a higher price but rather on capital appreciation of investments in REITs listed on Bursa Malaysia ( stock exchange).
For people who are impatient and want to create wealth in a hurry, I supposed it is better for them to invest in well established companies' stocks, that is buying on the low and selling high. You are sure to improve your financial position on that premise. But it is not always easy to multiply your investment in that way for various reasons, one of which is when you find that the market is pretty saturated and desirable stocks' prices are already high.
So where do you put your available investing fund? Well in Malaysia many people would point to high performance unit trust fund such as those managed by PNB ( National Capital Ltd). These funds have consistently given annual dividends higher than interest rates offered by banks. It is not surprising that they are likely to be fully subscribed. Fixed deposits are another alternative for conservative investors even though the interest rate is not that attractive unless you do not know what to do with your millions.
Coming back to investing in REIT (Real Estate Investment Trust), if you study the dividend yield, you would notice that it is higher than FD and most stocks on the market. In fact the gross dividend yield in the FTSE Bursa Malaysia index is about 2.9%, while the average yield for a REIT in Malaysia is about 8%. REITs yield higher returns because commercial real estate generate a huge amount of cash flow from rentals.
Thus begin my foray into REIT investment. I applied successfully for IPOs of Starreit, Arreit and Twrreit and kept them for almost three years but found that except for Twrreit, the first two were not giving me my expected returns ( post financial crisis of 2008) so I cleared them off. Twrreit was affected by the global financial crisis just like the others but later staged a remarkable recovery and despite a relatively good dividend yield I sold it on its 15% capital appreciation. Then I bought BSDReit which manages plantation properties and CMMT, newly listed last year and manages "pure shopping" malls properties in Gurney Plaza, Penang, Sungai Wang Plaza, Bukit Bintang and the Mines near Kuala Lumpur. I have been to those malls and seen for myself their positive potentials.
BSDReit has promised an annual dividend of more than 8% and CMMT had estimated theirs at 7.6%. So far the former has not disappointed me. In 2009 it was 11.3% and in 2010 the annual dividend was 9.3% and this year the first dividend has been declared at 6.2 sen so I am expecting the annual dividend to be slightly higher for 2011. As for CMMT, it has recently declared an initial dividend of 3.6 sen and its positive reported earning through high capacity rentals will ensure that it achieves its promised dividend, in fact according to the CEO, would be higher than first estimated at its listing.
I see my investment in REITs as another form of diversification and for passive/conservative income generation. I am not looking at rapid capital appreciation as even though I bought BSDReit and CMMT at 1.40 and 1.04 respectively, I must admit the individual unit price hardly moves. Lately BSDReit has moved to 1.50 and CMMT has ever reached 1.13. As the unit prices are sustained by the yield factor, you can take it that their volatility will not be an issue. And as by its nature it is not attractive to foreign investors, you can sleep easy when the foreigners take out their investment in the stock market like the recent pre- and post- CNY flight of capital.
I am quite happy with my current REITs as I see them as an investment that bridges the gap between a fixed deposit (FD) and the stock market. It is low risk and more liquid than say owning a real property. Low risk means low reward but at the rate these two REITs are doing, I am contented especially whenever I think of some of my existing nightmarish stocks such as PICORP and JCY. In diversifying into REITs I am now having a balanced portfolio to counter my recent purchase of a couple of volatile oil and gas stocks...Ahah..
My new year resolution of being more low risk in 2011 went out of the window in the third week!
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| Contented Caterpillar (courtesy photo) |
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