REIT managers seek withholding tax waiver

MANAGERS of real estate investment trusts (REITs) in Malaysia are hoping that a removal of withholding tax for investors will be included in next year's federal budget. The move is crucial to spur growth in the industry and to keep Malaysian property trusts competitive, they said.

"We would like to see a waiver or substantial reduction in withholding tax. Currently the withholding tax is notably higher compared to markets such as Singapore, Thailand and Hong Kong," Quill Capita Management Sdn Bhd chief executive officer Chan Say Yeong said. The company is the manager of Quill Capita Trust.

Lowering withholding tax would directly make Malaysia property trusts more regionally competitive, improve foreign direct investment into the country and increase the after-tax yield, he said.

"Such a move will attract foreign pension funds that are looking for long-term investments with higher yield as well as individual investors seeking higher return than bank deposits," Chan told Business Times via e-mail.

He added that the resulting better yield and foreign investor interest from the waiver will further generate confidence in developing Malaysian REITs.

His view was echoed by Stewart LaBrooy, the chief executive officer of Axis REIT Managers Bhd, who told reporters of a similar wish during a company briefing this month.

Malaysia imposes a 15 per cent withholding tax and 26 per cent tax on foreign investors and 20 per cent on institutional investors. In Singapore, there is no withholding tax on individuals and only 10 per cent tax on other investors, LaBrooy said.

Despite their defensive nature, as property trusts generally pay higher dividends, their share performance were not spared by the current weak market. So far, there has not been a single REIT being listed this year, after a few years of solid growth.

"The slowdown in the global economy and the tightening in liquidity due to US subprime issue have impacted the growth of the equity market in general, not just limited to REITs," Chan said.

Still, he said, Malaysian REITs have a lot of untapped potential as properties in the country are still generally undervalued and the economy is poised for sustainable long-term growth.

"The waiver in withholding tax that we are hoping for will create positive response in the market, helping to attract foreign inves-tors and individual investors."

Malaysia remains a new and fledgling market when it comes to the REIT industry, Chan said. Hence, investor awareness and education need to be continued and strengthened to boost industry prospects, he said.