Capital market perks

SHARE prices of real estate investment trust (REITs) are likely to rise when market starts on Tuesday as investors may rush in after the government cut tax on dividends received by them.

Foreign funds especially will find Malaysian REITs a bit more attractive now that their withholding tax is halved to 10 per cent, as announced under the Budget 2009 yesterday.

Local retail investors will pay a smaller tax of 10 per cent on their REIT dividends, compared with 15 per cent previously.

Other measures aimed at boosting the capital market include a tax exemption on fees that local investment banks get from helping to list foreign companies or investment products on Bursa Malaysia.

Fees and profits earned by deal-makers from non-ringgit sukuks issued in Malaysia and distributed abroad will also be exempted from tax for three years.

Malayan Banking Bhd's president and CEO Datuk Seri Abdul Wahid Omar welcomed the tax incentives for promoting international sukuk issuance out of Malaysia.

"The incentive will encourage more capital market players to conduct, arrange and invest in Islamic non-ringgit issuance," concurred Standard Chartered Bank Malaysia's head of Islamic banking Azrulnizam Abdul Aziz.

Meanwhile, both Axis REIT Managers Bhd chief executive officer Stewart LaBrooy and Am ARA REIT Managers Sdn Bhd chief executive officer Lim Yoon Peng are convinced that investors will buy more shares of REITs, since their after-tax returns are now higher.

"Share prices of REITs have been depressed under the soft market, which pushed dividend yield to around 8.5 per cent to nine per cent. I believe many foreign investors will rush in on Tuesday morning to lock in this high yield," Lim said.

Chan Say Yeong, who manages Quill Capita Trust, said the reduction in withholding tax will make Malaysia REITs more attractive to investors, especially foreign pension funds that are looking for long-term investment.

A lower withholding tax of 10 per cent for foreign institutional investors puts us on par with Singapore, Sunway City Bhd managing director Ngian Siew Siong said.

However, Malaysia REITs are still not competitive as local and foreign corporations are subject to 26 per cent tax compared to 18 per cent in Singapore, Ngian said.

Retail investors and domestic institutions are also still subject to 10 per cent tax, whereas REITs are tax-exempt in Singapore.

Yesterday's move was a good start and a step towards the right direction, but more can be done to make Malaysian property trusts more competitive regionally, industry players concurred.

"The tax cut will create some excitements. But I'm a little disappointed that individual investors are still being taxed on their dividend. At a time when real interest rates have turned negative, their investment in REITs should be encouraged as an alternative for positive yields," LaBrooy said.

By New Straits Times (by Chong Pooi Koon)