The long-awaited relaunch of the Malaysian Reit (real estate investment trusts) sector is upon us with the recent IPO of Axis Reit .

The authorities have gone a long way in revamping the original property trust legislation which failed to ignite investor interest despite predating the Japanese (launched Sept 2001) and Singapore Reit (launched 2003) legislations which have seen phenomenal growth in new listings and performance to date.

Credit should be given to our policymakers who have shown flexibility and sensitivity to the needs of the capital and property marketplace. I note, however, that there are several key areas where the Malaysian Reit legislation has fallen short of what has become the global standard.

1. A (high) minimum dividend payout ratio - All Reit legislation around the world stipulate a minimum payout ratio of 85% - 100% of distributable profits in order for the company to maintain its beneficial Reit tax status.

Reasons? (a) To ensure the Reit vehicle mimics the payout the investors would have received had they invested directly in the underlying properties of the vehicle itself; and (b) more importantly, it serves as a corporate governance tool to force Reit-status companies to pay out all its distributable earnings.

Mismanagement of retained earnings/cash is less likely. Moreover, the Reit has to raise equity in the market with new property acquisitions. This subjects the Reit manager to market discipline and ensures that the market will only pay for accretive (value-adding) acquisitions.

The Malaysian Reit regime does not stipulate a minimum dividend payout rate and leaves it to the discretion of the individual Reit manager to decide. This hence fails to give investors a predictable current return/dividend on her investment which has been a key attractive feature of Reits worldwide.

The proposed Axis Reit has stated its intention (as opposed to commitment) to achieve a 95% payout for the next three financial years but this is not written in stone and neither do investors know what will happen after the third financial year.

2. Taxation at the investor level - The present proposal taxes local residents' Reit dividends at income tax rates while other investors including Malaysian corporations and foreigners are taxed 28% of the dividends paid out. Unfortunately this compare poorly with other Reit-enabled countries.

Singapore has just this year reduced to zero taxes paid by Singapore tax residents and reduced from 20% to 10% the dividend withholding taxes paid by foreign investors. As the bulk of the total return from the Reit will come from dividend - as opposed to capital appreciation of the Reit shares - investors will be sensitive to the rates at which dividends are taxed.

Needless to say, the Malaysian Reit will have no support from international investors as the current 28% rate is plainly uncompetitive.

It is hope the authorities concerned will take another look at the two issues as they are critical in ensuring sufficient investor interest in the re-launch of the Reit sector in Malaysia. Having failed once, we should do everything to ensure that Malaysia takes its place among the growing number of Reit-enabled countries, allowing both local and international investors a liquid and transparent way to access our property market.