REIT Performance and Option of Financing Real Estate Project in Developing Countries - (A Case of M-REIT and NREIT)

Department of Estate Management, Faculty of Built Environment, University of Malaya, 50603 Kuala Lumpur, Malaysia

Abstract

Performance of REITs have been largely measured using benchmark from the stock market indices (S&P500, Sharpe ratio, KLCI, etc) or correlation studies. The real world of REIT shows that both economic and environmental factors exert influence on REIT performance on a simultaneous nature. Adopting quantitative method, where secondary data were statistically analysed. We proposed the use of multivariate regression where REIT performance (Y) is the independent variable to be predicted by predictor variables of internal and external factors (X₁–X_n). We equally proposed a possibility of REIT financing real estate project, against the existing regulations which prohibit such, using average return method of portfolio analysis on assumed numerical data. The study finds that economic factors jointly have a significant effect on REIT performance at P =0.044 while none of the factors has significant contribution individually. A benchmark REIT return of 5.3% is predicted. The study recommends a linear regression model analysis for REITs benchmark based on past performance for return measurement. REIT can only finance real estate project in the countries where there is acute shortage of fund and property stock. We suggest a modification of REIT laws to accommodate real estate financing by REITs.