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Here’s how you can diversify into global property – with minimal commitment.

The early 2000s was boom time for property. It’s easy to look back at those times through a nostalgic lens. If you’d bought a house back then, you were lucky. Real estate prices kept rising, and the bubble grew larger and larger as speculators kept puffing up the market. But like Icarus who ignored the warning signs and flew too close to the sun, the subprime mortgage crisis sent the global market crashing down.

Governments reacted by imposing stricter regulations to curb speculation, and since then, property prices have cooled significantly. When COVID came and changed everything, it seemed like the heyday of real estate was gone for good.

However, a closer look at the indicators reveals another story. As we move closer to the peak of interest/profit rate hike cycle, the availability of cheaper loans/financing propped up interest to relook into property investment. In Malaysia, the case is similar, albeit on a higher for longer interest/profit rate environment.

The light at the end of the tunnel is closer than we think. Property is making a comeback in Malaysia, spurred by the revival of several key infrastructure projects, foreign investors’ friendly policies and the potential of cheaper loans/financing.

In relaxing the requirements of the Malaysia My Second Home (M2H) scheme, the government will attract more foreign buyers into the more high-end side of the market, particularly in Penang, Johor, and Kuala Lumpur. The long-term MM2H residents could create a positive impact by spending into the domestic economy. (A side note: Did you know that a study by Nasdaq in 2023 has ranked Malaysia as the safest place to retire in Asia? Nasdaq combined cost of living, economic, and Global Peace Index statistics and we came out tops! The food helps, too.)

All the right indicators

Right now, as you’re reading this, Singaporeans are snapping up real estate in Johor, excited by the upcoming completion of the Rapid Transit System (RTS) link between the island republic and Malaysia. All this movement, even with the increase in additional buyer’s stamp duty for Singaporeans. When the RTS gets rolling, the dreaded congestion at the checkpoint will be a thing of the past.

Things could only get hotter down in the south when the plans for the High-Speed Rail (HSR) materialise. The news has been abuzz with talks of an HSR-based revival of Forest City in Iskandar Puteri. The much-maligned ghost town is said to be the focal point for several planned transportation projects to improve accessibility. The Prime Minister also announced that a special financial zone would be established within the development to boost investment in the state.

Things are looking up for the global real estate market, too. Across the globe, companies are enforcing permanent, or hybrid, return to office policies. Rapid advancements in technology are creating new positions to be filled and propping up demand for digitally driven real estate like data centres and telecommunication towers.

Making property investment accessible to all

Property investment is widely regarded as a sound financial choice, but its considerable initial cost makes it inaccessible to most folks. The high entry point (think deposits, fees, taxes, high commitment to loans/financing, etc) means that once you’re in, you won’t have room to spread your investments across multiple properties. The concentration of investors in just a handful of property types further compounds this issue.

A solution to this would be to make property investment more affordable by breaking it up into bite-sized pieces so everyone can have a slice of the pie. With smaller investments, one would easily be able to diversify across a broader range of properties, locations, and sectors.

The good news is such a thing already exists! Real estate investment trusts (REITs) do exactly this. They can be considered as an investment vehicle for those seeking stable income and long-term capital appreciation. REITs allow you to invest in a whole portfolio of real estate assets, much like mutual funds enable investing in a diversified portfolio of stocks. You don’t hold any physical real estate, so there’s nothing to give you a headache. You don’t have to lift a finger – except to sign the forms.

The income from REITs is from the rent collected from the properties they own or finance, such as commercial buildings, apartments, shopping malls, or warehouses, and the bulk of it is distributed in the form of dividends, or distribution per unit (DPU). That’s how REITs generate a regular income stream.

The portfolios often comprise various types of properties across multiple locations. That’s instant diversification and risk reduction. You get immediate access to different countries without even leaving your couch.

Most REITs are publicly traded, so you can buy and sell shares just like stocks. This makes them highly liquid compared to buying and selling a physical property.

REITs are ripening for the harvest. Falling interest rates can potentially lead to price appreciation of REITs, which can positively impact REITs' net asset value (NAV). REITs can become more attractive to both income and capital growth-seeking investors.

Going global in 2024

While most investors focus on Malaysian REITs, global REITs offer investors exposure to a wider range of real estate assets around the world. Are global REITs worth consideration in 2024? Yes.

In addition to all the benefits we mentioned above, there are more specifically related to the wider diversification of global REITs.

Reduced risk: By investing in a variety of geographically dispersed properties, global REITs mitigate the risks associated with any single market downturn. For example, if the economy in one country falters, the returns from properties in other regions can help to offset losses.
Enhanced access to high-growth markets: Emerging markets often boast faster- growing economies and younger populations, which can translate into higher demand for real estate. Global REITs allow investors to tap into these growth opportunities without having to directly invest in these markets themselves.
Potential for higher yields: Global REITs often benefit from lower operating costs and higher rental rates in certain regions, which can lead to attractive dividend yields compared to domestic REITs.
Currency diversification: Investing in global REITs can provide exposure to different currencies, which can help to hedge against foreign exchange fluctuations.

Global REITs have a proven track record, too. They aren’t an unproven new invention.

Source: eVestment, as of 31 December 2023

Take advantage of emerging global trends

Technology and the needs of the population have pushed change across the global economy, including how we view property as an asset. Investing in global REITs like Manulife Shariah Global REIT can offer you exposure (more than 50% as of December 2023) to emerging trends that support long-term growth.

Source: Manulife Investment Management

Its fund manager Manulife Investment Management (US) Limited assesses both macro and micro economic developments to target companies in stable and growing economies. The fund leverages the talents of more than 650 investment professionals across 19 locations who place emphasis on providing you with capital appreciation and a sustainable income through a diversified real estate portfolio.

Shariah Global REITs has outperformed Global REITs in long run with more than 40% of the total return derived from income and balance from capital gain.

Source: Morningstar & IdealRatings, as of 31 December 2023

Yes, but you should also know…

Careful analysis of the specific REIT and its management, its sector, and the broader economic context is crucial before making investment decisions based on interest/profit rate expectations. This is something your Relationship Manager will gladly help you with.

Despite their obvious advantages, global REITs aren’t a wonderful risk-free path to instant riches. Some of the key risks (and opportunities) to consider include:

Foreign currency risk: Fluctuations in foreign currencies can impact the value of your investment. On the flip side, investing in a global REITs that has assets in Europe or the US could work in your favour right now.
Political and economic risk: Like any other investment, global REITs are exposed to the political and economic risks of the countries in which they invest.
Liquidity risk: Some global REITs may be less liquid than others, making it more difficult to buy or sell shares. But they are still more liquid than physical property.

Global REITs offer investors a compelling way to gain exposure to the global real estate market and potentially generate attractive returns. By carefully considering the risks and rewards, they are a valuable addition to a well-diversified portfolio.

This chart compares some of the other REITs unit trust available through our platform that you may consider:

Source: Lipper Investment Management as of 31 December 2023

We hope this article has been instrumental in helping you fortify your portfolio. An investment decision depends on your risk profile and your current investment portfolio to ensure sufficient diversification. Do engage our relationship manager to know how REITs may potentially fits into your portfolio. Your Relationship Manager is waiting for your call!

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This article has been prepared by RHB and is solely for your information only. It may not be copied, published, circulated, reproduced or distributed in whole or part to any person without the prior written consent of RHB. In preparing this presentation, RHB has relied upon and assumed the accuracy and completeness of all information available from public sources or which was otherwise reviewed by RHB. Accordingly, whilst we have taken all reasonable care to ensure that the information contained in this presentation is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness and make no representation or warranty (whether expressed or implied) and accept no responsibility or liability for its accuracy or completeness. You should not act on the information contained in this article without first independently verifying its contents.

Any opinion, management forecast or estimate contained in this article is based on information available as the date of this article and are subject to change without notice. It does not constitute an offer or solicitation to deal in units of any RHB fund and does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this. Investors may wish to seek advice from a financial adviser/unit trust consultant before purchasing units of any funds. In the event that the investor chooses not to seek advice from a financial adviser/unit trust consultant, he should consider whether the fund in question is suitable for him. Past performance of the fund or the manager, and any economic and market trends or forecast, are not necessarily indicative of the future or likely performance of the fund or the manager. The value of units in the fund, and the income accruing to the units, if any, from the fund, may fall as well as rise.

A Product Highlights Sheet (“PHS”) highlighting the key features and risks of the Manulife Shariah Global REIT Fund dated 20 October 2023. (“Fund”) is available and investors have the right to request for a PHS.

The Manager wishes to highlight the specific risks of the Manulife Shariah Global REIT Fund are Manager’s Risk, Market Risk, Liquidity Risk, Loan or Financing Risk, Suspension/Deferment of Redemption Risk, Fund Manager Risk, Stock Specific Risk, Country Risk, Currency Risk, Risk Considerations for Investing in Islamic Hedging Instruments, Risk Associated with Investment in REITs, Reclassification of Shariah Status Risk and Taxation Risk/Withholding Tax Risk.

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This article has not been reviewed by the Securities Commission Malaysia (SC).

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