“CIMB warns Malaysian REITs could face profit pressures in 2H 2025 due to expanded SST and rising electricity tariffs. Axis REIT remains the top buy for its resilient portfolio.“
Kuala Lumpur, 17th June 2025, 04.08pm – Real estate investment trusts (REITs) in Malaysia are likely to face a more challenging second half of 2025 as the expanded Sales and Services Tax (SST) and rising utility costs squeeze both landlords and tenants, according to CIMB Securities.
The brokerage said the 8% SST, set to be implemented on leasing and rental services from July 1, will increase tenants’ operating costs, putting pressure on rental reversion rates for REITs.
“Every one percentage-point drop in rental reversion could trim REITs’ core net profit by up to 2%,” said CIMB in a sector update.
While residential rentals are exempt from the new tax, the broader coverage may still dampen consumer sentiment, reducing retail sales and impacting variable rental income—a key earnings driver for retail-focused REITs.
Some of the early signs are already emerging. Sales per square foot at major malls operated by Sunway REIT and IGB REIT, which manages Mid Valley Megamall, have shown softening retail performance, the report noted.
Retailers have previously voiced concerns that the SST expansion could strain retail margins and contribute to consumer inflation, with rent being one of the highest fixed costs for businesses, according to the Malaysia Retailers Association.
Beyond tax changes, rising electricity tariffs are another risk flagged by CIMB. A projected 15% hike in base tariff rates could further raise property operating expenses, reducing REIT profitability—unless costs are passed through to tenants.
The firm estimates that such a tariff increase could shave off around 2% in earnings for Sentral REIT (KL:SENTRAL), Sunway REIT, and IGB REIT.
However, Axis REIT is expected to be the least affected, with 74% of its portfolio single-tenanted, allowing better cost control. Its earnings may see a minimal impact of less than 1%.
CIMB Securities maintained a “neutral” stance on the sector, keeping all REITs under coverage at “hold” except Axis REIT, which remains a “buy” for its stable cost structure, resilient tenant base, and strong upside potential.
