Should Investors Look into REITs Now As Market Tumble?

With markets facing uncertainty, Real Estate Investment Trusts (REITs) are showing resilience. On a year-to-date (YTD) basis, the Bursa Malaysia REIT Index has climbed by 6.92%, outperforming many other sector-based indices.

This positive momentum has been largely driven by the retail and hospitality sectors, which are seeing a surge in tourist arrivals, economic reopening, and increased spending, partly fueled by withdrawals from EPF Account 3.

According to a research report by NAPIC and MIDF, the occupancy rate of shopping complexes has bounced back, rising from a low of 75.4% in 2022 to 77.4% in 2023, and further increasing to 77.6% in Q1 2024. This is a clear sign of recovery, thanks to higher foot traffic in malls and a boost in retail spending.

However, not all segments are performing equally. The office sector remains under pressure, largely due to an oversupply of office space in Malaysia over the past decade. The overall occupancy rate for office buildings stayed flat at 72.0% as of Q1 2024, reflecting weaker demand, partly due to hybrid working models reducing the need for traditional office spaces.

Despite the challenges in the office segment, the outlook for the broader REIT market is positive. With the Overnight Policy Rate (OPR) expected to remain at 3.0%, REIT earnings are forecasted to be stronger in 2024 and 2025, particularly for REITs with diversified portfolios.

However, REITs heavily exposed to office spaces may face headwinds.

Given this landscape, Axis REIT, Al-Aqar Healthcare REIT, and AmanahRaya REIT stand out as safe bets for investors. These REITs have a mix of assets, including healthcare and educational properties, which provide stability and growth potential.

Notably, AmanahRaya REIT is currently trading at more than 50% below its Net Tangible Asset (NTA), making it an attractive option for value-focused investors.

Disclaimer:

The information provided in this article is for informational purposes only and should not be construed as financial advice. Investors should conduct their own research and consider their financial situation, investment objectives, and risk tolerance before making any investment decisions. The author and publisher are not liable for any financial losses or damages resulting from the use of this information. Always consult with a qualified financial advisor before making any investment choices.