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KUALA LUMPUR (March 20): Real estate investment trusts (REITs) led losses across Bursa Malaysia’s sectoral indices on Thursday (March 19), as sentiment turned sour following the government’s move to remove a decade-long preferential tax treatment on REIT distribution.
The Bursa Malaysia REIT Index, which tracks 20 companies, fell 3.45% or 33.55 points to 939.18 points on Thursday’s closing bell, making it the worst-performing index on the exchange for the day.
At 939.18 points, the index fell to its lowest level since Dec 26, 2025, when it closed at 939.40 points.
The broad-based decline saw most REIT counters trading lower, with retail and commercial names Pavilion Real Estate Investment Trust (KL:PAVREIT), IGB Real Estate Investment Trust (KL:IGBREIT) and Axis Real Estate Investment Trust (KL:AXREIT) leading 18 of the 20 index counters to end the day in negative territory.
Pavilion REIT's units fell 6.52% or 12 sen to RM1.72, IGB REIT dropped 5% or 14 sen to RM2.66, while Axis REIT ended 5.83% or 12 sen lower at RM1.94.
Other notable decliners included Atrium Real Estate Investment Trust (KL:ATRIUM) (fell 4.41% or six sen to RM1.30), Sunway Real Estate Investment Trust (KL:SUNREIT) (dropped 4.1% or 10 sen at RM2.34), CapitaLand Malaysia Trust (KL:CLMT) (declined by 3.82% or 2.5 sen to 63 sen), YTL Hospitality Real Estate Investment Trust (KL:YTLREIT) (sank 3.64% or four sen to RM1.06).
Heavy trading was seen in IGB REIT, Pavilion REIT, CapitaLand Malaysia Trust, suggesting active repositioning by investors following the tax announcement. IGB REIT saw 16.37 million shares change hands, followed by CapitaLand Malaysia Trust with 10.56 million shares traded, and Pavilion REIT at 9.96 million shares.
The sell-off comes after the previous concessionary rate of 10% for most non-corporate investors ceased to apply beginning 2026, according to the Inland Revenue Board Practice Note 2/2026. Malaysians will be taxed based on prevailing individual rates with no withholding tax deduction.
Under the new framework, Malaysian investors will be taxed based on prevailing personal income tax rates, with no withholding tax deduction, while foreign individuals will be taxed at 30% of chargeable income and non-resident corporations at 24%.
The move comes after Finance Minister II Datuk Seri Amir Hamzah Azizan said in February that Malaysia’s REIT market has matured, growing from a market capitalisation of RM1 billion to RM57 billion over the past 21 years into a stable and widely accepted asset class, suggesting it may no longer require continued fiscal support.
Astute Fund Management senior analyst Matthew Ooi told The Edge the shift to investor-level taxation reduces after-tax yields for foreign and tax-sensitive investors, making Malaysian REITs less competitive versus regional peers and potentially leading foreign investors to trim their exposure, which is likely to put pressure on valuations.
"However, the impact is partly mitigated by domestic unit trust funds, as dividends received from Malaysian companies (including REITs) are already tax-paid and exempt at the fund level. This provides some support to valuations and limits the downside," he said.
Ooi added that from a regional perspective, the sector remains constrained by its relatively small scale, lower liquidity, and high concentration in domestic retail and office assets. This contrasts with regional peers, which benefit from stronger sponsor pipelines, larger market capitalisation, and greater overseas diversification.
Maybank Investment Bank in its note said the sector’s underlying yield profile remains relatively resilient, estimating net yields could still average between 4.7% and 6%.
The Bursa Malaysia REIT Index currently offers an average yield of about 5.36%, compared with 3.56% for Malaysia’s 10-year government bonds, according to Bloomberg data.
“While not affecting earnings, the new tax treatment could still weigh on sector sentiment and marketability by reducing the appeal of post-tax distribution yields for certain investor groups,” Maybank IB added.
The research house added that investors may now increasingly favour REITs with stronger organic distribution per unit growth, visible rental reversions, asset enhancement initiatives, and acquisition pipelines to offset the drag from lower post-tax yields.
Its top picks include Paradigm Real Estate Investment Trust (KL:PARADIGM), CapitaLand Malaysia Trust and Al-Salam REIT (KL:ALSREIT).
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