Retail REITS stay cautious
Rising cost of living to pose a challenge among consumers
WHILE retail real estate investment trust (REIT) players are confident of their prospects for the year ahead, they are wary of the market’s persisting challenges.
According to Retail Group Malaysia (RGM) in its latest retail industry report, the biggest challenge facing the local retail industry this year remains the rising cost of living issue.
“Beginning Jan 1, 2024, a 10% sales tax has been levied on imported low-value goods of not more than RM500 sold via online.
“Many local and foreign online retailers have introduced this new tax on imported goods. This has led to higher retail prices on goods sold online.”
It adds that the service tax rate on many goods and services has increased from 6% to 8% since March 1.
“This increment has led to higher prices of retail goods and services.
“This will affect retail spending on essential items, non-essential goods, personal services, general services, cars as well as travelling.”
Additionally, RGM says the service tax on monthly electricity bills of more than RM220 has increased to 8% from March 1.
KLCCP Stapled Group chief executive officer Datuk Md Shah Mahmood is cognisant of the challenges that face the local retail sector.
“No doubt, certain economic and industry challenges will persist and new ones may arise.
“Yet, adhering to our strategic framework and leveraging enhanced group synergies, KLCCP Stapled Group is set to maintain the momentum achieved into the coming year, with each business segment continuing to flourish, supported by robust fundamentals,” he says in the group’s annual report.
Md Shah emphasises that there is increasing urgency for the group to expand and diversify its business to maintain its relevance in a rapidly changing landscape.
“While acknowledging the need to be cautious, we will be more proactive in exploring possibilities and seizing opportunities that fit our criteria.”
KLCCP Stapled Group chief financial officer Rohizal Kadir says the various taxes that will be imposed this year will, no doubt, have an impact on the industry.
“While the impact has yet to be seen, we will continue to provide exceptional service to our retail and office tenants, while looking at growth opportunities.
He says the group has received its board’s mandate to expand its investment portfolio.
“This has spurred us to explore new property investments from 2024 onwards.
“We have also developed a framework for diversifying into new ventures. Our current gearing, at 18%, is very healthy and provides ample room for growth.”
Rohizal says a key focus in 2024 will be for the group to meet its financing obligations.
“We have two sukuk tranches totalling Rm1.1bil maturing in April and December. Our strong Aaa/stable rating, together with an anticipated moderation in interest/ profit rates in the coming year, lend us confidence to raise the funds required at optimal cost.”
Meanwhile, Sunway-reit chairman Tan Sri Amirsham A Aziz says the group is planning for a “higher-for-longer interest rate” environment.
Challenges abound for the year ahead, chief of which will be the expected higherfor-longer interest rates, especially in Malaysia.
“Even as developed countries explore a potential reversal of the interest rate policy, loosening monetary policy may take place later, rather than earlier in Malaysia, as Bank Negara has been much more measured in hiking rates.”
He adds that oversupply of office and retail space, especially in the Klang Valley, may also potentially restrict growth within the two sectors.
Nonetheless, Amirsham says there are also reasons to be optimistic for the coming year.
“Malaysia’s robust economic fundamentals, reinforced by the strategies in Budget 2024, are expected to sustain economic growth.
“In particular, segments like retail trade, accommodation, restaurants and communications are expected to improve.”
At the same time, Amirsham says trade-related activities will likely boost the wholesale trade, as well as transport and storage subsectors.
“At a more granular level, initiatives by the government in reinstating flight frequency and connectivity, as well as granting the 30-day visa-free status for citizens of China and India, augur well for the continued recovery of the tourism sector.”
He adds that efforts to improve relations and connectivity between Singapore and Johor are also bearing fruit.
“The state has attracted great investor interest over recent months with more foreign direct investments anticipated across the country due to the improved bilateral relations.”
Meanwhile, Pavilion-reit chief executive officer Datuk Philip Ho Yew Hong says the group will focus on maintaining its portfolio strength.
“Pavilion-reit’s portfolio of prime retail and office assets in Kuala Lumpur remains a cornerstone of its success.
“We continue to optimise occupancy rates, diversify tenant mix and enhance tenant relationships, ensuring stable and resilient income streams.”
For 2024, RGM revised its annual growth rate in retail sales to 4%, an upward adjustment of 0.5% points from the projection it made in November last year.
“For the first quarter of 2024, the Malaysian retail industry is expected to enjoy a strong growth of 7.1%, due to the Chinese New Year (CNY) festive period and month-long school holidays from February to March.
“The attractive ringgit, as well as the visa-free entry for visitors from China brought in a large number of foreign tourists to the country during the CNY period.”
RGM forecasts the local retail industry to grow by 3.5% during the second quarter of this year, with contribution mainly from the Hari Raya festivities.
“Hari Raya Aldilfitri this year will be celebrated from the second week of April. The retail sector in the country is anticipated to expand moderately by 2.5% during the third quarter of 2024.”
For the last quarter of 2024, RGM is projecting a 3.2% growth rate for the retail sector.
“We will be more proactive in exploring possibilities and seizing opportunities that fit our criteria.” Datuk Md Shah Mahmood