Price of M'sia industrial land too high
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"Chronic" speculation has driven up the prices of industrial land to outstrip even that of some advanced Western countries, said Malaysian Real Estate Investment Trust (REIT) Managers Association chairman Stewart LaBrooy.
Citing an example, he said the cost of industrial land in Germany, at 20 ringgit (Bt193) per square foot, was now cheaper than Malaysia.
“I can’t find land for 20 ringgit per sq ft here unless it is a swamp, in which case it would need a lot of money to rehabilitate. There has to be a shift in thinking. The various states have to allocate land for industrial developments, and not put them in the middle of nowhere, but next to townships.
“We try to work with local authorities to get land prices in line with international standards. Then we can inject them into REITs at decent prices,” added LaBrooy, who is also chief executive officer and executive director of Axis REIT.
Speaking to reporters on Tuesday, LaBrooy explained that the office and industrial-based Axis REIT aimed to maintain its portfolio yield at 8 per cent.
“We have made acquisitions below 8 per cent before but they were on long leases, which averages out to a higher yield in the long term. I would take a lower yield if I think the property has a lot of upside and we can do something with it later.”
Kenanga Research told clients in March that the current average portfolio net property income (NPI) yield for Malaysian REITs under its coverage stood at between 6.5 per cent and 8.9 per cent, versus the prevalent cap rate for offices and retail spaces of 6-7 per cent and 5-6.5 per cent, respectively.
The cap rate refers to the rate of return on a real-estate investment based on its expected income.
“As asset values have risen aggressively over the years, it becomes more challenging for REITs to acquire portfolio NPI-accretive assets as rental rates are lagging behind. Hence, asset financing structures must be optimal to extract the best return from such assets,” the brokerage said.
“Evidently, Axis REIT’s last few acquisitions were either lower than or close to its portfolio NPI yield of 8.9 per cent,” Kenanga Research added.
