AS with many industries, most Malaysian Real Estate Investment Trusts (M-REITs) have suffered to different degrees due to the various phases of movement restrictions, challenging market conditions and tough operating landscape.

       Moreover, as owners and professional managers of many of the most iconic and landmark assets in Malaysia, M-REITs have also shouldered the burden of providing more than RM1bil and still counting, in rent relief and various initiatives to assist thousands of tenants, supporting many local businesses and SMEs, and allowing many hardworking Malaysians to keep their jobs in the most difficult of times over the past two years.

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       Now, as the nation has transitioned to phase phase four of the National Recovery Plan, with gradual reopening of borders for international trade and travel, would 2022 be a much-anticipated year of recovery?

       Despite the potential downside risks presented by the new Omicron variant, a vast majority of the adult and adolescent populations in Malaysia have been fully vaccinated, with ongoing implementation of booster shots.

       In this sector of public health and safety, the government has performed well, and if the same could be done to assist and support the severely battered economy, the inflection point could come sooner, saving the lives and livelihoods of families and businesses across the country.Pandemic-related shocks or longstanding challenges?

       When understanding the various challenges faced by M-REITs, it is tempting to point to the pandemic as the main contributing factor. While the black swan event has had an outsized impact, it is important not to neglect longstanding obstacles that require structural changes and practical solutions for M-REITs to not get left behind, or worse, left out in an increasingly competitive and evolving market.

       M-REIT industry has not been in its best form in recent years, which is a pity, given its tremendous untapped potential in stimulating the capital market and contributing to the national economy.

       While 13 M-REITs were listed in the six years between 2005 and 2011, the past 10 years saw the debut of only six M-REITs, a clear and worrying slowdown in growth.

       Meanwhile, other developing countries such as India, the Philippines and China have joined the race with their first REIT listings in 2019, 2020 and 2021 respectively, with China floating nine REITs in their first year alone, intensifying competition for international investors’ funds to a whole new level.

       As these countries represent more than 35% of the world’s population and more than 20% of the global gross domestic product with immense potential and high growth rates, their REITs would naturally become the centre of attention in the region.

       If no meaningful changes are made to the current trajectory, Malaysia the tiger cub may very well be squeezed out by the rising dragons.

       Practical policies in a changing era

       To revive the competitiveness of the M-REIT industry, the Malaysian REIT Managers Association (MRMA) hopes that regulators would actively engage with various stakeholders in developing policies and guidelines that would shape the future of the Malaysian capital market and real estate landscape.

       The current move towards a disclosure-based policy is in the right direction, but more breadth and depth would be needed in these reforms to provide the flexibility for M-REITs to evolve, progress and grow in a competitive and rapidly changing global and regional environment.

       MRMA also advocates for policies and initiatives that would potentially bring substantial positives for the economy, such as tax flow-through for Special Purpose Vehicles (SPVs) owned by M-REITs and the exemption of Withholding Tax for M-REIT individual unitholders, both of which are in line with the established best practices of regional peers such as Singapore.

       For one, tax flow-through for SPVs (consistent with wholly-owned assets) would be crucial for M-REITs to participate in larger-scale projects via partnerships with other non-REIT companies, including government linked companies and government linked international companies, reduce upfront capital commitments and diversify risk across different investments.

       The exemption of Withholding Tax for M-REIT individual unitholders would also benefit many Malaysian retail investors, growing their long-term savings and household equity while attracting international investors to invest in Malaysia, providing much-needed inflows to turn the economy around.

       In the longer term, this would potentially encourage more M-REITs to list in the local bourse, growing the capital base on which the economic multiplier effects could be applied in a positive, self-reinforcing cycle.

       Successful case studies such as the steady growth of Singapore REITs (S-REITs) will allow all stakeholders to learn and take reference from their strategies, improvising for the local context without having to reinvent the wheel.

       Such an approach of strategic adaptation would provide the critical boost for M-REITs to gather momentum in the race to catch up, and perhaps one day, surpass our neighbours to become the leaders of the pack.

       Win-win approach in an interconnected world

       Over the years, the Malaysia My Second Home (MM2H) programme has contributed meaningfully to the residential and commercial property market in terms of rents and transactions as well as tourism revenue to the country’s coffers. It is also a sustainable driver for economic recovery and a golden goose that has brought in approximately RM40bil for the nation since its inception, including high-end property purchases, bank deposits, domestic spending on food and beverage, leisure, education and healthcare, as well as investments in local capital markets, including M-REITs.

       Unfortunately, the recent conditions announced by the government for the MM2H programme are rather stringent and have not been generally well-received by stakeholders and industry players. As such, MRMA believes that the MM2H should be reformed rather than tightened in a blanketing, one-size-fits-all manner.

       Allowing eligible MM2H programme participants to contribute their skills, capital and unique expertise to the Malaysian economy by investing in and operating businesses such as restaurants, learning centres, tour agencies, sports and recreation hubs, as well as tech and digital start-ups, will benefit the local community, provide full-time employment opportunities for Malaysian citizens, support SME vendors, increase demand for retail and commercial floor-space, and contribute to the Government’s tax base.

       If the MM2H programme is properly reformed, multiple sectors of the Malaysian economy would stand to benefit, as foreign talent with Science, Technology, Engineering and Mathematics (STEM) skills, investors and entrepreneurs would be encouraged to stay and travel in Malaysia, educate their children, seek medical treatment, embrace local culture and bring in delicious international gourmet such as sushi, hotpot and tapas to elevate the country as a global hub for trade and cultural exchange.

       The flow of affluent financial and human capital resources into the country would contribute significantly to the shared and sustained prosperity of the national economy.

       Progress or be left behind

       It is undeniable that Malaysia is facing a shortfall in Foreign Direct Investment (FDI), trailing behind less-developed neighbours such as the Philippines, Indonesia and Vietnam which have caught up, and in some cases, overtaken us. While other countries have been equally devastated by the pandemic, the decline in Malaysia’s FDI comes as a result of underestimating our competitors as well as policy flip-flops in the past few years.

       It is unfortunate that our country has been surpassed by others while we remain divided amongst ourselves, but it is not too late to reverse the situation by re-establishing goodwill, stability and trust between the government, society and the business community, and avoid falling into the trap of taking two steps forward, but five steps back.

       Moving forward as a nation

       Warren Buffett famously said, “it takes 20 years to build a reputation, and five minutes to ruin it”. As we progress to a new endemic era, consistent and progressive policy-making would be crucial in reviving the economy and lifting it to greater heights.

       Proposals have to be well-thought out as each stroke of the pen will determine the direction of the country for years and decades to come, cascading across generations. We are the custodians of our own future, and whether we rise or fall will depend on the choices we make today.

       Datuk Jeffrey Ng is the immediate past chairman of the Malaysian REIT Managers Association and CEO of Sunway REIT Management Sdn Bhd. The views expressed here are his own.