KUALA LUMPUR (Jan 3): The real estate investment trust (REIT) sector would be minimally affected by the high-value goods tax, as tenants' profit sharing is less than 10% of the mall’s total revenue, while the potential impact on luxury goods buyers is likely to be limited due to their comparatively lower price sensitivity given their large purchasing power, according to Hong Leong Investment Bank (HLIB).

The tax at a rate of 5% to 10% (previously known as the luxury tax) will come into effect in May. The government is currently finalising the policy and draft legislation for the tax on high-value goods.

In a note on Wednesday, HLIB maintained its "neutral stance" on the REIT sector, as the research house commands an overall balanced risk-to-reward profile with a preference for retail REITs. 

“Despite potentially slowing domestic consumer demand, improving tourist arrivals should help cushion this. Moreover, REITs with hospitality assets are also poised to ride the improvement in Malaysia’s tourist arrivals. 

“However, office REITs are not out of the woods yet, as more office supply enters the market, continuing to put pressure on office rental reversions. Separately, industrial space remains poised to benefit from various government initiatives, along with continued growth of the e-commerce sector,” said the research house. 

HLIB’s top picks for the sector are Sunway REIT ("buy"; target price or TP: RM1.89) due to its diversified exposure to various asset classes, in addition to its hospitality assets around its prime mall, Sunway Pyramid, which will benefit from the improvement in the tourism sector, and Pavilion REIT ("buy"; TP: RM1.60) with its Pavilion Kuala Lumpur mall, which will benefit from increased footfall and stable rental reversion. 

At the time of writing on Wednesday, Sunway REIT had risen 0.65% to RM1.56 per unit, translating into a market capitalisation of RM5.34 billion for the REIT. Pavilion REIT was unchanged at RM1.23, with a market value of RM4.49 billion.