The purpose of this paper is to examine the performance of 19 Malaysian Real Estate Investment Trusts (M-REITs) over the period 1999 to 2014, following the implementation of dividend tax reforms announced in the 2007, 2009 and 2012 budgets.
Sharpe index, Treynor index and Jensen α are utilized to compare the performance of M-REITs against a newly developed tax-adjusted value-weighted M-REITs index, equity market, property sector and three month Malaysia Treasury Bills (T-Bills). The calculation of M-REITs returns has been adjusted to take into account the dividend tax reforms which have never been considered in previous studies.
Most M-REITs outperform the tax-adjusted value-weighted REITs index, equity market, property sector and three month T-Bills. Property sector performs worst during those periods. Some of the M-REITs have a higher standard deviation than the equity market and the tax-adjusted value-weighted M-REITs index. Most M-REITs have a lower total risk than the property sector. Further analysis shows that before (after) the tax reforms, most M-REITs underperform (outperform) the other sectors. The introduction of the tax reforms benefits both REITs and investors. A significant positive Jensen α for some M-REITs indicates that fund managers are able to time the market or to select undervalued assets.
Findings of the study would enable investors to evaluate the performance of all REITs in comparison to other financial assets during the period of study for better investment decision making. A more accurate assessment on REITs performance that take into account the tax reforms, is available for investors and fund managers to decide on the investment mix to be included in their portfolio. Moreover, fund managers’ performance can be assessed whether they perform better or worse than the equity market, property sector and three month T-Bills.
This study contributes to the scant literature on dividend tax reforms and their implication toward REITs performance. It is the first study to thoroughly assess the returns of REITs by taking into account the changes on dividend tax rates announced in the 2007, 2009 and 2012 budgets.
The authors would like to express the gratitude to the Ministry of Higher Education, Malaysia for funding this project under the Fundamental Research Grant Scheme (Code S/O: 12910). We are also thankful to the participants of the Pacific Rim Real Estate Society Conference 2016 and the 18th Malaysian Finance Association Annual Conference 2016 and colleagues at the School of Economics, Finance and Banking for the constructive comments. To the research assistants, your help in gathering and cleaning the data are very much appreciated.
Abdullah, N., Taufil Mohd, K. and Wong, W. (2017), "Implications of dividend tax reforms on M-REITs performance", Journal of Property Investment & Finance, Vol. 35 No. 2, pp. 184-199. https://doi.org/10.1108/JPIF-11-2016-0087Download as .RIS
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