REITs Demystified: A Deep Dive into Real Estate Investment Trusts for Malaysian and Singaporean Investors

Introduction: Why REITs Deserve Your Attention

If you've ever thought of owning property for steady rental income but balked at the capital needed, the hassle of dealing with tenants, or the paperwork involved—then REITs might be the game-changer you're looking for.

Real Estate Investment Trusts, or REITs, are professionally managed investment funds that allow you to invest in a portfolio of real estate assets just like you’d buy shares on the stock market. In essence, you become a partial landlord of shopping malls, offices, warehouses, hospitals, and more—without needing to deal with leaky pipes or tenant drama.

This post dives deep into how REITs work, what makes them attractive (especially in Malaysia and Singapore), their risks, and how you can start investing even with a small capital base.

What Are REITs and How Do They Work?

REITs are companies that own, operate, or finance income-producing real estate across a range of property sectors. In Singapore and Malaysia, REITs are listed on the local stock exchanges—SGX and Bursa Malaysia respectively—and are regulated by their financial authorities.

When you buy units in a REIT, you're essentially buying a stake in the trust’s portfolio of properties. You earn a share of the income generated—mainly from rental proceeds—usually in the form of dividends.

The key players in the REIT ecosystem include:

• Unitholders (You, the Investor) – provide the capital

• REIT Manager – oversees asset acquisition and portfolio strategy

• Property Manager – handles day-to-day operations

• Trustee – safeguards investors’ interests

• Shariah Advisor (for Islamic REITs) – ensures Shariah compliance

Let’s now look at the reasons why REITs are growing in popularity among income investors in both Malaysia and Singapore.

1. Low Capital Requirement – Start Small, Think Big

One of the biggest barriers to owning physical real estate is the sheer amount of capital needed. In Malaysia, even a modest apartment in Klang Valley costs upwards of RM400,000. In Singapore? Let’s not even go there—prices easily start in the six-figure SGD range.

REITs lower this entry barrier drastically.

Still, while you can start small, it’s advisable to invest with at least RM3,000 or SGD3,000 to avoid brokerage fees eating into your returns. Look for low-cost brokerages where fees are below 1% of your capital.

Tips:

• Use brokers with low minimum commissions (RM8–RM10 in MY, SGD10–SGD15 in SG).

• Reinvest dividends using DRP (Dividend Reinvestment Plans) when available.

2. High Liquidity – Unlike That Unsold Apartment

Real estate is notorious for being illiquid. It can take months to sell a property, especially in a down market. REITs, on the other hand, can be bought or sold instantly like any other stock.

Daily transaction volume:

• S-REITs: SGD200–300 million

• M-REITs: RM20–30 million

That’s a lot of buying and selling, which gives you peace of mind—you can always cash out quickly if needed.

3. High Dividend Yields – Regular Passive Income

REITs are popular among retirees and passive-income seekers for one reason: consistent cash payouts.

Average dividend yields (as of end-2024):

• S-REITs: ~6.5%

• M-REITs: ~5.4%

These yields generally outperform government bonds in both countries. The reason is simple—REITs are required to pay out at least 90% of their taxable income to enjoy tax exemptions. That means most of the rental income is passed directly to investors.

Malaysia Note: M-REITs withhold a 10% tax on dividends for both residents and non-residents.

Singapore Note: S-REIT dividends are tax-free for both locals and foreigners.

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4. Diversification and Lower Risk

Investing in one property means putting all your eggs in a single basket. But REITs often hold dozens of properties across multiple locations and sectors.

For instance:

• Axis REIT (MY): Owns over 50 industrial/office properties.

• CICT (SG): Owns 24 office and mall properties including Raffles City and Bugis Junction.

Regulations cap borrowings:

• SG: Gearing capped at 50%, interest coverage ≥1.5x

• MY: Gearing capped at 50%, new development limited to 15% of assets

This level of oversight reduces the chance of overleveraging and default.

5. No Hassle, Fully Managed by Pros

Let’s face it—being a landlord isn’t glamorous. Tenants default, appliances break down, and agents take commissions. With REITs, you don’t deal with any of that.

Professionals handle:

• Lease management

• Property upgrades

• Tenant sourcing

• Regulatory reporting

As a unitholder, your only job? Monitor distributions and read quarterly reports.

Challenges and Risks of REITs

It’s not all sunshine. REITs, like all investments, come with risks.

1. No Leverage Like Physical Properties

Buying a property? Banks may finance up to 90% of the purchase price.

REITs? You invest what you have. While margin trading exists, it's riskier due to stock market volatility. This limits your upside compared to leveraged property investing.

2. Volatility – Stock Market Nature

REITs are stocks. They trade daily. Prices go up and down due to interest rate changes, market news, or even global events (remember COVID-19? S-REITs tanked 40% in March 2020).

Volatility is NOT the same as risk. Just don’t panic-sell based on price swings—focus on fundamentals like:

• Occupancy rates

• Rental revisions

• Gearing and interest coverage

• Asset location and type

3. Some REITs Are Riskier Than Others

Not all REITs are created equal. Watch out for:

• Low occupancy rates

• High gearing ratios

• Poor tenant diversification

• Weak sponsor backing

Shariah-Compliant REITs – An Ethical Option

In Malaysia, several REITs are Shariah-compliant, such as Al-Aqar Healthcare REIT and AXIS REIT, meaning they avoid interest-based financing and lease properties aligned with Islamic principles.

For Muslims looking to grow wealth ethically, Shariah-compliant REITs are a valid option and are screened by reputable Shariah boards.

How to Get Started with REIT Investing

1. Open a brokerage account – Use platforms like Rakuten Trade (MY), FSMOne, Tiger Brokers (SG).

2. Screen your REITs – Look at:

   • Distribution Yield

   • Price-to-NAV

   • Gearing Ratio

   • Occupancy Rate

3. Diversify – Don’t just pick one. Spread across multiple REITs in different sectors.

4. Reinvest Dividends – Consider compounding your returns through DRP.

5. Monitor Regularly – Read quarterly reports, attend AGMs if possible, and stay updated on macroeconomic developments.

Conclusion: Are REITs Right for You?

REITs aren’t a get-rich-quick scheme. They are a stable, relatively low-risk, income-generating investment suitable for:

• Busy professionals looking for passive income

• Retirees seeking consistent yields

• First-time investors testing the market with small capital

Whether you're in Johor or Jurong, REITs offer a smarter, hassle-free way to tap into real estate—without the usual burdens of being a landlord. The key, as always, is doing your due diligence, staying disciplined, and diversifying wisely.

Disclaimer: This article is for informational purposes only and does not constitute a buy or sell recommendation. Always do your own research or speak to a licensed financial advisor before making any investment decisions.