PETALING JAYA: Brokers’ sentiment is turning positive on Malaysian real estate investment trusts (M-REITs) on the belief that sector valuations have turned attractive following the recent unit price corrections experienced across the sector.
Hong Leong Investment Bank (HLIB) Research for instance, has upgraded the sector from “neutral” to “overweight” following a sell-off in which the Bursa Malaysia’s REIT Index dropped 5.6% from its second half of financial year 2026 (2H26) peak, offering an attractive entry window for yield-seeking investors.
The core catalyst behind this pivot is the widening dividend yield spread of the M-REITs relative to the 10-year Malaysia Government Securities (MGS).
As the 10-year MGS yield climbed toward the 3.96% to 4% range driven by US Federal Reserve rate decisions and domestic rate expectations, REIT unit prices derated to adjust to the higher risk-free rate environment.
Consequently, the dividend yield spread on REITs over the 10-year MGS expanded significantly to 231 basis points (bps), compared to 77 bps in 2022.
CGS International (CGSI) Research noted that with the bulk of rate-driven derating done, REITs may experience a re-rating from potential policy tailwinds from Budget 2027.
“The Malaysian REIT Managers Association is lobbying for the reinstatement of the preferential 10% withholding tax (WHT) that lapsed in March 2026 and an increase in the gearing limit from 50% to 60% of total asset value.
“WHT restoration would remove an estimated 50 bps to 100 bps drag on post-tax yields, while a higher gearing limit would expand acquisition potential, in our view.
“We also expect Budget 2027 to focus on raising household incomes and purchasing power with targeted cash assistance and other fiscal support.
“This should underpin domestic consumption and buoy retail-focused REITs through higher tenant sales and rental growth,” the research house stated in its latest REIT sector report.
CGSI Research reiterated its “neutral” call on REITs due to lingering macro uncertainties (Middle East geopolitical tensions, domestic policy instability, among others) which could limit share price gains in the near term.
HLIB Research, however, expects REITs to see sustained earnings delivery in 2H26 across the retail, hotel and industrial subsectors.
Its top picks are Axis-REIT (target price (TP): RM2.27), Pavilion-REIT (TP: RM1.94) and IGB Commercial-REIT (TP: 73 sen).
CGSI Research’s top M-REIT picks are Axis-REIT (TP: RM2.15) for its industrial growth and Capitaland Malaysia Trust
(TP: 79 sen) for its about 8.7% FY27 yield.
The house also upgraded Sunway-REIT (TP: RM2.45) to “add” following an 18% valuation correction.
