Islamic REITs in Malaysia: Practical Issues

• Published in: Asialaw 2007-01, p.1
• Main Author: Zain Azra'i Abd Samad, Azharuddin Ahmad Jais and Nadiah Abdul Haleem Shah, Abdul Raman Saad & Associates
• Format: Article
• Language: English
• Subjects: Consent; Documentation; Investment policy; Investors; Islamic financing; Land; REITs; Restrictions; Valuation
• ISSN: 1022-0267

In Malaysia, the attractiveness of investing in REITs has been enhanced by the introduction of Islamic REITs (I-REITs). An I-REIT is similar to a conventional REIT in that it is an investment in property portfolios as a corporate fundraising method, in which the proceeds (in the form of sums collected from rentals) are distributed back to investors. However, compared to a traditional REIT, an I-REIT necessitates that the property portfolio, the investment and the distributed proceeds are derived from businesses that are compliant with syariah (Islamic) law. Nonetheless, there is some flexibility to this requirement. The I-REIT Guidelines, which were issued by the Securities Commission of Malaysia in November 2005, give a 20% maximum benchmark on the amount of proceeds that can be derived from non-permissible (not syariah compliant) activities. The I-REIT Guidelines have specified the instances in which an I-REIT can invest (whether from the acquisition of real estate or rent collection), as long as the activities comply with the requirements of syariah -compliant benchmarks.