The Development and Preliminary Performance Analysis of Islamic Reits in Malaysia.

Journal of Property Research Vol. 26, No. 4, December 2009, 329–347

The development and preliminary performance analysis of Islamic REITs in Malaysia

Graeme Newella* and Atasya Osmadib

a

RJPR_A_485417.sgm Taylor and Francis

University of Western Sydney, Australia; bUniversiti Sains Malaysia, Malaysia (Received 7 October 2009; final version received 5 February 2010)

g.newell@uws.edu.au Professor (print)/1466-4453 0 4000002010 26 Taylor GraemeNewell 2010 OriginalofFrancis 0959-9916Property Research (online) Journal&Article 10.1080/09599916.2009.485417

With the significant growth in Islamic financial products in recent years, the world’s first Islamic real estate investment trust (REIT) was established in Malaysia in August 2006, with these REIT portfolios needing to be Shariah compliant. This paper constructs three Malaysian REIT (M-REIT) series and assesses the significance, risk-adjusted performance and portfolio diversification benefits of Islamic M-REITs in a mixed-asset portfolio in Malaysia over 2006– 2008, contrasting this performance with conventional M-REITs in Malaysia. While the impact of the global financial crisis is evident, Islamic M-REITs are seen to be a differentiating property investment product from conventional MREITs, as well as displaying the defensive characteristics of low-risk levels and portfolio diversification benefits to those seen by conventional M-REITs. These differentiating features and portfolio diversification benefits for Islamic M-REITs were further evident and enhanced in the global financial crisis; reflecting a degree of robustness not seen in most other global REIT markets during the global financial crisis. The ongoing implications for Islamic M-REITs and Islamic REITs in other global REIT markets are also highlighted. Keywords: Islamic finance; M-REITs; Islamic M-REITs; risk-adjusted returns; portfolio diversification; global financial crisis

1 Introduction International property investment has taken on...