RISK AND RETURN OF M-REITS DURING COVID-19: EVIDENCE FROM CAPITAL ASSET PRICING MODEL (CAPM)

ABSTRACT

COVID-19 pandemic has affected real estate sectors, including Real Estate Investment Trust (REIT), as the total return of a REIT is subject to the property market’s performance. This research assesses the risk and return of Malaysian REITs (M-REITs) and All-REIT portfolios during the COVID-19 pandemic. Based on a desktop study, the researchers analysed M-REITs’ historical monthly closing price, FBM KLCI and the yield of 10-year MGS using the Capital Asset Pricing Model (CAPM). The number of observations is 24, six (6) months before and 18 months after COVID-19 hits Malaysia. The result shows that the estimated return of M-REITs using CAPM ranged from-0.1905 to 0.2391. The researchers also develop an equally weighted portfolio where all 17 M-REITs have an equal weight allocation of 0.0588 to assess the fair estimated return of the All-REIT portfolio. The findings also suggest that despite the pandemic and implementation of Movement Control Order (MCO), the average monthly log-return of M-REITs outperformed the monthly log-return of the market portfolio in April and November of 2020 as well as March and June 2021. The remaining period recorded slightly at par with FBM KLCI. Beta at less than 0.1 also indicates that M-REITs is less volatile than the market portfolio. In conclusion, CAPM suggests that M-REITs show a low-performance deviation with market portfolio during the pandemic signifying that it is a low-risk investment and shall be included in any investment portfolios. The findings of this research are vital for investors in considering M-REITs for their investment portfolio. © 2022, Construction Research Institute of Malaysia. All rights reserved.