Performance of Malaysian property investment vehicles

Abstract

Comparative performance analysis on all property investment vehicles is necessary for investment decision-making. However, published studies have yet to evaluate the performance of direct commercial properties against the other available property investment vehicles in Malaysia. This paper addresses the research gap by analyzing the performance of all direct property and indirect property investment vehicles in Malaysia from 2001-2010. Direct property vehicles are benchmarked by Malaysia House Price Indices (terraced, high-rise, detached and semi-detached houses), while commercial properties represented by Retail Index and Office Index. Indirect property vehicles are proxied by Kuala Lumpur Property Index (KLPI) and Malaysia Real Estate Investment Trust Index (M-REIT). The sample period is further categorized into pre-crisis, crisis and post-crisis according to Malaysian economic cycle. Vehicle performance is based on risk-adjusted return calculated using Sharpe Ratio. The results show that KLPI had highest average quarterly return and risk characteristics throughout the entire timeframe. In terms of risk-adjusted return, Retail Index outperformed all property investment vehicles followed by semi-detached house investment throughout the entire sample period. Direct retail property investment would be the best choice for crisis and non-crisis period. It is also recommended to invest in M-REIT during crisis to minimize the impact of the downturn.