Tax Policy Shift Continues to Pressure Malaysian REIT Valuations
PETALING JAYA, April 28 — Malaysia’s real estate investment trust (REIT) sector is likely to face sustained valuation pressure, even after recent price adjustments, as the market has yet to fully reflect the impact of the withdrawal of withholding tax incentives.
According to CGS International, the removal of the preferential 10 per cent withholding tax rate previously enjoyed by non-corporate investors has not been completely priced in by investors.
The research house has revised its outlook on the sector to “neutral” from “overweight”, noting that market participants may still be underestimating the scale of valuation distortion arising from the policy change.
Starting in 2026, the special withholding tax rate will be abolished, with foreign individual and institutional investors facing taxes of up to 30 per cent on taxable income, while non-resident companies will be subject to a final tax rate of 24 per cent.
Local investors, meanwhile, will be taxed based on prevailing personal income tax rates without the benefit of withholding tax deductions.
The change is expected to disproportionately affect REITs with higher exposure to foreign and institutional ownership, as the resulting compression in net yields may prompt investors to rebalance their portfolios.
CGS analysis suggests that the sector’s weighted average tax rate could rise significantly, from about 1.1 per cent for KLCC REIT to around 7.4 per cent for Axis REIT.
However, REITs backed by strong holdings from government-linked companies (GLCs), sponsors and strategic investors are expected to show greater resilience, as their effective tax rates remain relatively stable.
“Although distribution per unit (DPU) is projected to stay steady, the higher effective tax burden will increase required returns, thereby exerting downward pressure on fair valuations,” the report said.
In this evolving environment, investors are expected to place greater emphasis on income growth potential and asset quality.
REITs capable of sustaining earnings growth and practising active capital management are seen as better positioned to weather structural valuation pressures over time.
CGS added that taxation has now become a key determinant in shaping investor sentiment and the overall attractiveness of the local REIT sector.
-wilayah.com.my
