3 Myths Regarding Shari’ah Compliant REITs
Perhaps you have been admiring the performance of Shari’ah Compliant REITs and been wondering why they have attracted so much attention from institutional investors. Or perhaps you have at one time considered investing in a Shari’ah Compliant REIT but a lack of understanding of the product has put you off from getting vested.


Shari'ah Compliant REITs may include properties such as technology parks such as the above, a property under the Sabana Shari'ah Compliant REIT portfolio.

Either way, this short article aims to address the most common vexations that investors have with regards to this very niche class of securitized real estate investment known as the Shari’ah Compliant REIT.

What Are Shari’ah Compliant REITs and Islamic REITs?

Don’t let the names confuse you. Depending on your locality, Shari’ah Complaint REITs may also be known as Islamic REITs but they basically mean the same thing. Shari’ah Compliant REITs are Real Estate Investment Trusts that have taken a certain level of commitment towards partaking in activities that are deemed to be acceptable according to principles of Islamic jurisprudence. This generally includes refraining from tenancy activities with businesses that handle alcoholic beverages, gambling activities and other activities considered to be not aligned with the values of Islam such as brothels and clubs.

Besides adhering to regulatory requirements imposed by the bourse in which they list, Shari’ah Compliant REITs will also need to adhere to audits that will be conducted on them by certifying bodies such as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) or independent Shari’ah surveyors to certify that they are indeed Shari’ah compliant.

For the sake of brevity, we will refer to them in this article by its more commonly used term – Shari’ah Complaint REIT. Examples of prominent Shari’ah Complaint REITs in this region today include Sabana Shari’ah Compliant REIT (Singapore), Al-Aqar Healthcare REIT (Malaysia) and Al-Hadharah Boustead REIT (Malaysia).

Myth 1: Shari’ah Compliant REITs Have Limited Earning Potential Due to Islamic Restrictions.

On the contrary, Shari’ah Compliant REITs have ample track record of giving reliable dividends even during times of economic slowdown. For example during the first five months of 2013, Sabana Shari’ah Compliant REIT topped the table by beating 21 other REITs listed on the Singapore Exchange when ranked according to 12-month historical dividend distribution yields. Institutional investors such as the Malaysian-government backed Pilgrims Board Fund have also increasingly taken on more units in Shari’ah Compliant REITs such as the Al-Aqar REIT.

But why is this so?

Shari’ah Compliant REITs have mostly resorted to industrial properties and healthcare properties as the bread and butter of their respective portfolios. This is due to the fact that tenancy activities within these two clusters are at the least likely to come afoul of Islamic jurisprudence principles as compared to a retail or hotel premises where alcoholic beverages are aplenty. It so happens that properties within these the industrial and healthcare sectors have also historically provided the most reliable yield vis-a-vis properties in sectors such as retail or hospitality. Hence it can be deduced that the stable nature of Shari’ah Compliant REITs is largely derived from the intrinsic nature of the properties that it invests in.

Myth 2: Shari’ah Compliant REITs absolutely will NOT take in tenants that handle alcoholic beverages.

This will mostly depend on the standard or model of Shari’ah compliance that the REIT has decided to take on. Most Shari’ah Compliant standards will have a certain level of tolerance towards non-permissible activities. For example Sabana REIT subscribes to the Gulf Coorperation Council (GCC) compliant standard which has a 5 percent tolerant level towards activities that are deemed to be not acceptable to Islam. This means that REITs that subscribe to this Shari’ah Compliant model may have a certain number of tenants who engage in non-permissible activities, such as wine storage, as long as it does not exceed 5 percent of the total gross revenue derived.

Other certifying bodies such as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) may have a different model or tolerance level than the GCC before conferring a REIT the status of Shari’ah Compliant.

Myth 3: Only Muslims can partake in Shari’ah Compliant REITs.

Investors of all religious inclinations can partake in this investment vehicle. Shari’ah Compliant REITs have been established to ride on the growing demand, especially from investors in the Middle East, for investments that are aligned to their belief systems. But it has not been designed to exclude investors of any other faith.

In substance, Shari’ah Compliant REITs are no different from ethically-coded investment classes, such as environmentally friendly or fair-trade investments, in that the assets follow a certain moral code. But other than that it is not steeped in any peripheral dogma or exclusivity clauses.

Good info on Shari’ah Compliant REITs.

Thanks for sharing

What happened to Singapore equities amidst fears of early QE3 cut back

Were they badly hit?

According to DBS, given the recent volatility in global bond markets and the negative spill over into equity and currency markets, investors will be closely monitoring the FED’s guidance and intentions on asset purchases from the outcome of this week’s FOMC meeting.

DBS Economics Research sees reasons for the FED to sit tight rather than taper asset purchases. US GDP growth in the next 2 quarters is expected to read 1.4%, not much better than the previous two and less than half the long-term average as the impact of the US85bil sequester cut is felt from April-Sept.

Here's more from DBS:


While the recent headline improvement in US unemployment rate led investors to set a straight line projection for the jobless rate to fall to 6.5%, which is one of the triggers for the FED to exit QE3 and raise interest rates, we believe things are never that simple.

Our economist notes that recent manufacturing data has weakened again with the May PMI falling to 49, the lowest since June 2009.

The employment rate sub-indices for both the ISM manufacturing and services have also dipped. If these weaknesses persist, the pace of improvement of the unemployment rate can moderate or even reverse.

Singapore equities were sold down in recent weeks in anticipation of an early QE3 cut back, but the sell-down appears to have reached a short-term support last week.

Consensus expectations are for the FED to reduce the monthly bond purchases to USD65bil from the current US85bil by September and start raising interest rates by Mar15.

Any less from the FED this week can trigger a further rebound in equity prices.
- See more at: http://sbr.com.sg/residential-property/new...h.5TZRjgtR.dpuf

target suntec, at today lowest price ...... hope i'll get it ......

Hi guys, I wonder how the T+3 settlement calculated?

Let's say I buy a stock today (25/06/2013), when will be the settlement date? Is it 27/06/2013 or 28/06/2013?

Beside that, what time the money will be deducted on settlement date?

This post has been edited by almeizer: Jun 25 2013, 09:14 PM

suntec giving near 6% dividend.. why need to go across border?

My first buying was abt two yrs ago, now just toping up...... So my yield maybe more than that.....

Forgot to update already top up.....

This post has been edited by cwhong: Jun 26 2013, 12:15 AM

Another round of result announcements coming soon!

CD results?

Yes.

Most S-REITs will be releasing their quarterly results over the next 2 weeks.

How much charges for ... Local brokerage? If everything at SG... Because next month will go SG work !

Congratz for sg job, here u go...... go check it up.... u may need to share on it once u are familiar with the investing environment there....... looking forward ur posting...... http://forums.hardwarezone.com.sg/stocks-s...3628498-26.html

sure ... no problem sifu Cwhong!

4 Reasons Why REITs Are Better Investments Than Real Estate


By REITsWeek


Scottish American industrialist and philanthropist Andrew Carnegie once said that 90 percent of millionaires became so through owning real estate. This wisdom, though dispensed in the 18th century, is a wisdom that has persisted today judging from the popularity of real estate as an investment class.

There is nothing inherently erroneous in this advice despite the carnage that has unfolded in recent years in the real estate market. As an asset class, real estate investments generate a reliable stream of income besides holding the prospect of capital appreciation. And unlike the yesteryears when real estate investments are within reach of only the very wealthy, prospective investors today can participate in real estate investments through a Real Estate Investment Trust (REIT).

But the popularity of REITs in recent years has brought about a perennial debate as to which is a better mode of investment, buying real estate physically or holding it in a REIT? Each method has its own merits but this article we will discuss four advantages that REITs investors have over traditional property investors.

Scalability
Real estate, be it a single building or an estate, will require constant maintenance and repair. Certain property types such as shopping malls will require even greater maintenance costs as they will need to sustain a decent façade in order to attract shoppers and continue generating income. An investor who puts his money on a single property will need to consider the expenditures on leaking roofs, faulty plumbing or termite infestations as part of his investment costs. In some cases, these costs can be quite hefty and may not be easily recoverable from the tenant.

In REITs, building maintenance costs, or more commonly referred to as capital expenditures (CAPEX), are borne by the REIT managers and are in effect distributed across many shareholders. In some cases, favourable lease terms allow these costs to be passed on to the tenants, practically absolving the REIT investor from any sort of building maintenance costs. As a REITs investor, it is unlikely that you will see CAPEX making significant impact on the returns of your investment. This is the scalability that REITs investors enjoy over property owners.

Diversity
Owning a single property would usually mean that your fortunes are pretty much tied up in the sector that your property is vested in. For example, if you own a small factory complex, it is unlikely that you will benefit from the surge of tourist arrivals in your country. And should the demand for manufacturing slows, you may be in trouble finding a tenant for the property.

REITs investors are able to expose themselves to several sectors of the economy at any one time by distributing their investments across different REIT categories such as Retail REITs (to benefit from surges in consumer spending), Hospitality REITs (to ride on tourist arrivals) or Healthcare REITs (to benefit from increased spending on medical services). This minimises the risk that an investor is over exposed to just one particular sector of an economy. To achieve the same level of diversity with traditional property holdings would require a very hefty investment.

Professional Management
An investor who decides to buy and manage a property as an investment will usually have to depend upon himself in managing the property including renovations, sourcing for tenants and making sure that the building adheres to local safety regulations. These functions can be outsourced to third parties, but this would severely increase the costs of managing the property and erode the returns on investment.

REITs on the other hand are managed by dedicated teams of REIT managers who make it a daily endeavour to look for growth opportunities while keeping borrowing costs low. REIT managers are also very experienced in financing and asset enhancement strategies, often increasing the value of the properties that they manage over time. This is the advantage of having a professional management that REITs investors enjoy over traditional property investors.

Favourable Tax Rulings
In many economies, building owners are liable to annual property taxes, administration fees and stamp duties, on top of paying personal income taxes as an investor. The combination of these taxes can be very overwhelming.

REITs on the other hand are largely exempt from paying taxes at the REIT level in virtually most economies as long as they distribute at least 90 percent of their income to shareholders. In economies like Singapore, the government has gone even further to exempt REITs investors from paying taxes on capital gains and dividends from REITs. Tax rulings vary across the different economies. But one similarity that these economies have is the markedly favourable tax rulings that REITs investors enjoy over the traditional property investor.

Singapore REITs Sink as Chinese Stocks Slump - by REITSWEEK

Shares in China tumbled from their two-week highs after the Chinese government indicated that it will pull the plug on credit to industries that are currently facing over capacity issues. Markets in Asia responded by sliding to their lowest levels in weeks. Singapore's benchmark Straits Times Index closed the day lower by 0.45 percent to end at 3155.

However the damage was significantly larger for the frothy Singapore REITs market as heavyweights such as Ascendas REIT tumbling to their lowest levels since 23 July 2012. The FTSE ST Real Estate Index, largely seen as a barometer of Singapore REITs, tumbled by 1.63 percent to close at 734 points. The top 10 losers for the day are tabulated as follows:

REIT	Last	Drop (S$)	% Drop
Fortune REIT	6.700	-0.250	-3.60
Keppel REIT	1.290	-0.045	-3.37
Frasers Commercial Trust	1.330	-0.045	-3.27
First REIT	1.190	-0.040	-3.25
Mapletree Commercial Trust	1.150	-0.035	-2.95
Starhill Global REIT	0.830	-0.025	-2.92
Frasers Centrepoint Trust	1.840	-0.055	-2.90
Cambridge Industrial Trust	0.710	-0.020	-2.74
Ascendas REIT	2.210	-0.060	-2.64
AIMS AMP Industrial Trust	1.585	-0.040	-2.46

In the near term, Singapore REITs are facing a risk of tighter monetary policies by the US Federal Reserve and the Chinese Central Bank. Should current liquidity levels taper down, the nation state could be seeing capital outflows from the property market, further weighing down on REITs for a foreseeable future.



Similarly, MY REITs prices are moving downwards too lately .. is this the time to pick or drop?

This post has been edited by numbertwo: Jul 17 2013, 10:35 AM

How much bond yield? 3%?
How much S-REIT's yield? 6%?
Why wasted that 3% to switch to bond from REIT?
Debt concern? That's just like 3% decrease for 50bp hike. We are talking about 3% vs 50% difference here.
I see this selling down more speculative than being realistic.

If not the exchange rate my-sg down i will load some more to topup..... more....

Anywhere I can view the result for all REIT?

SGX.com webpage.

SGX.com webpage.