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1. INTRODUCTION
Real Estate Investment Trusts (REITs) is one of the most popular investment channel for investors. According to Goddard and Marcum (2012), REITs is a special investment vehicles in which can be used by investors who seeks positive return possibilities as their portfolio diversification strategy. In Malaysia, it was recorded that there was a spectacular growth of REITs market capitalization from 2005 until 2013 (Wong, 2015). Generally, all existing REITs promotes the same benefits to the potential investors such as attractive return, enhanced diversification and inflation hedge strategy (Lazard, 2017). The purpose of this paper is to provide a proper understanding of this investment vehicle as a whole in relation with Islamic perspective.
Summary of studies from 50 articles which was selected from the literature survey are provided in the following section of the report. The articles were selected from many sources such as mainly from the aspect of its accessibility for full text and the relation of the articles with the categories which will be discussed in the following literature survey findings. Based on the articles that were collected, several aspects have been decided as categories of the findings. The first section will discuss an overview of Islamic Finance and Islamic Capital Market. Second section will discuss an overview of REITs. The third section will discuss the growth and development of REITs around the world followed by fourth section which discussed performance of REITs. Risk and management of REITs will be discussed in the fifth section while the sixth section will provide a comparison between conventional REITs and Islamic REITs. Last but not least, the last aspects that will be discussed are the issues, opportunities and challenges of REITs.
2. ISLAMIC FINANCE AND ISLAMIC CAPITAL MARKET
Islamic Finance is no longer an alien term these days. Vast growth of Islamic Finance can be seen as there is continuous increased in demand of Islamic Finance’s product and services. Najeeb and Vejzagic (2013) stated that since mid-1990s, Islamic Finance worth of asset has been increased from approximately USD 150 billion to USD 1.6 trillion in year ended 2012. Not only Muslim markets and jurisdiction, Islamic Finance now also demanded from the non-Muslims.
Capital Market on the other hand is the market where equity securities such as shares and debt securities such as bonds are traded (Nammari, 2017). Normally, companies will use this platform in order to raise their fund or asset. This market includes primary markets in which new securities are sold to investors and secondary market which is the place where existing securities are traded. Islamic Capital Market was developed as one of the important component in Islamic Financial System besides Islamic banking and Islamic Insurance (Takaful) in the mid-1990s as a result of modern Islamic Finance evolution, transactional developments and the tremendous effort from multilateral Islamic Finance institutions such as Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Islamic Development Bank (IDB) and Islamic Financial Services Board (IFSB) (McMillen, 2006). It aims to provide a platform where Shari’ah compliant securities can be traded. Based on report by Securities Commission (2004), the fundamentals of this market are similar with Islamic Finance which are to prohibit riba (interest), gharar (uncertainty), maysir (gambling), non-halal (prohibited) food and drinks as well as immoral activities.

Several past articles have discussed the development, opportunities, and challenges of Islamic Finance and Islamic Capital Market (Kammer et al., 2015; Najeeb and Vejzagic, 2013). According to Kammer et al. (2015), Islamic Finance was developed in order to promote greater financial inclusion especially for underserved Muslim populations and to emphasis on asset-backed financing and risk sharing feature. However, this continuous development planning and process faced several challenges. The issue mainly discussed are regulatory and supervisory framework, the challenges in sukuk market and the formulation and implementation of macroeconomic policies.
3. OVERVIEW OF REITS
Real Estate Investment Trusts or commonly known as REITs are one of the asset classes in equity securities traded in capital market. It was introduced U.S. Congress in 1960 in order to create investment vehicles in real estate for small investors so that they can invest in a large-scale, income-producing real estate (Goddard and Marcum, 2012; Feng et al., 2011). Generally, REITs according to U.S. Securities and Exchange Commission (SEC) (2011) is a company that owns and operates income-producing real estate or real estate-related classes which may include office buildings, shopping centers, lodging facilities, industrial parks and apartments. It is said that investors can gain several benefits by including REITs in their portfolio particularly attracting risk/reward balance and gain market variability balance as portfolio diversification is a key to successful long term investment (NAREIT, 2011).
Basically, there are three categories of REIT stated by SEC and many other articles such as Virani and Kaur (2015). They are equity REITs, mortgage REITs and hybrid REITs. Equity REITs is the investment made in a specific properties in the form of equity investment. It can focus on one category of investment or multiple asset classes and involves a wide range of activities including leasing, development of real properties and tenant services (Dusuki, 2008). Mortgage REITs differ in which it obtain mortgage obligation and become a creditor to existing indebtedness for investment property. Lastly, Hybrid REITs is the investment in both equity and debt securities or in other words, investors invest by owning properties as well as making loans. There are also sector-specific types of REITs which are housing REITs, industrial REITs and hotel REITs.
Islamic REITs or I-REITs was introduced following the development of ICM in Islamic Financial Market which define by Securities Commission (2005) as “a collective investment scheme in real estate, in which the tenant(s) operates permissible activities according to the Shariah.” Literature survey found that many studies and articles discussed on I-REITs (Osmadi, 2007; Mohamad and Mohd Razif, 2014; Hwa and Noor, 2007; Dusuki, 2008; Chuweni and Ahmad, 2014). The first world’s I-REITs was launch innovatively in Malaysia with the establishment of Al-Aqar KPJ REIT on 28th June 2006 (MIFC, 2013). As a pioneer of I-REIT, there are many other REITs has been formed since then such as Al-Hadaharah Boustead REIT in 2007, AXIS REIT in 2008, and KLCC REIT in 2013. I-REITs emphasis the principles of Shariah
The introduction of Islamic REITs was motivated due to several factor and one of the most important reason is the Shari’ah compliance issue. Other than that, it was also due to the need for quality underlying real estate with sustainable growth prospect and other factor such as income stability, liquidity and diversification of risk in investment portfolio (Ripain and Ahmad, 2015). In Malaysia, Janice and Ali (2005) found that one of the reasons investors engage in REITs investment are due to the Listed Property Trust (LPT) poor management, thin trading volume, small market size and slow capital appreciation.
4. REITS AROUND THE WORLD
Since it first introduced, the world has witnessed a continuous growth of REITs (Ooi et al., 2006, Campbell and Sirmans, 2002). In Asia, REITs emerged in 2001 with Japan and Singapore as leaders of the market. Japan led the market with the launch of two J-REITs in September 2001 followed by Singapore first S-REITs in July 2002. Other participants in Asia’s REITs market are Malaysia, South Korea, Hong Kong and Taiwan.
Ooi et al. (2006) has discussed the development of REITs in several countries in Asia. REITs in Japan has shown a remarkable growth. After it was launch, report shows an increased in the market capitalization by 8.7 times to around USD 19.9 billion in 2005. According to Japan REIT, in 2014, it was recorded there were 46 J-REITs operated in Japan. Meanwhile in Singapore, the first REITs was established after Monetary Authority of Singapore (MAS) released the guidelines in May 1999. The sector involves in S-REITs are retail, office, industrial and hotels. Recently, Philip Capital (2017) mentioned that apart from retail, all other sectors has indicated a positive scenario of tapering supply after a peak supply in 2017.
Virani and Kaur (2015) had studied the development of REITs in India in their paper. Findings shows many significant facts. The world faced a global crisis during year 2007-2008 where it impacted to an economic downturn. Though, India manage to develop its real estate sector without much distress. With that, real sector in India is considered as one of the key drivers of the country’s economy and second largest generator of employment opportunities. To boost the economic development in India, REITs was introduced during 2014-2015 by Securities and Exchange Board of India (SEBI). In addition, this medium of investment was introduced due to several significant reasons such as increasing demand due to changing demographics and growing urbanization, promoting transparency in real estate market and improvement in debt-equity proportion. Besides that, India introduced REITs so that it can act as a medium for addressing non-performing assets (NPAs) and it can be used by investors to diversify their investment portfolio.
As REITs was first introduced in the west countries, European countries definitely shows development of REITs. Germany was stated as the biggest property market in Europe and therefore plays important role in European economy. Development of German REITs was discussed by Schacht and Wimschulte (2008). The idea was initiated by Initiative Finanzstandort Deutschland (IFD). After discussions from various parties including academia, business and politics, German REITs succeed in passing German REIT Act and thus was implemented in January 2007.
5. PERFORMANCE OF REITS
Past literature also shows empirical and qualitative studies on performance of REITs mainly in Malaysia (Osmadi, 2007; Tze et al., 2012; Chai, 2011, Buttimer et al., 2012; Pham, 2013). Studies indicates various findings on performance of REITs. Osmadi (2007) in his findings shows unstable but considerable performance of REITs in Malaysia such as Starhill REITs and AXIS REITs. Apart from that, there are scholars who studies comparison of REITs before and after Global Financial Crisis 2008. Chai et al. (2011) suggested from the results that REITs in Malaysia performed better during the Global Financial Crisis 2008 compared to pre-crisis and post crisis. It was revealed that Malaysia REITs had outperformed the market during the crisis period. However, it was added that the market had emerging performance after the global crisis. This findings quite contradicts with Tze et al. (2012) who found that there are diverse findings on Malaysia REITs’ performance based on the measurement tools used. Generally, their results shows that REITs in Malaysia the crisis period but increased after the crisis period.
In terms of Islamic REITs, Rozman et al. (2015) investigated the performance of Islamic REITs in the year 2008 to 2014. Similarly, results indicated that Islamic REITs also outperform the shares and bonds market during that period. However, when comparing performance of conventional REITs and Islamic REITs, Islamic REITs had performed better than conventional REITs in terms of ROE between 2007 and 2009. Osmadi and Razali, 2015). A strong high quality management during the global crisis was believed to be a key factor in the mentioned performance. This is agreed by Chuweni et al. (2017) where their results shows higher efficiency levels than conventional REITs during year 2007 to 2015.
In relation with the abovementioned studies, further study has been conducted to examine whether Malaysian REITs outperform the equity market (Yusof and Mohd Nawawi, 2012). Results indicated a positive alpha value in CAPM measurement and thus concluded that Malaysian REITs indeed outperform the equity market. From other perspectives, comparisons has been made between Malaysian REITs and other REITs. For example, in paper by Olanrele et al. (2014), it was stated that Malaysian REITs performed better than Nigeria REITs. However, financing real estate in Nigeria is better than Malaysia as the lending rate in Malaysia is lower than the return of property investment. Meanwhile, larger Asian REITs indicates no significant positive relationship in terms of revenue, operating income and equity costs but significant positive results I terms of economies of scale (Ting Sham, 2009).
It is proven that performance of REITs is influenced by several factors. One possible reasons was due to raising interest rates. Osmadi (2010) revealed key factors that influenced performance of REITs in Malaysia which are equal agreement between property managers, fund managers and property advisors on dividend growth and acquisition of new assets, level of borrowings and growth strategy. Olanrele et al. (2014) added that economic and external factors did contribute to performance of REITS. Later, Wong (2015) argue with findings of Osmadi (2010) whereby performance of REITs is significantly correlated with domestic stock market but only slightly correlated to changes interest rates. Recently, further studies was conducted to investigate the determinant of REITs performance in Malaysia and results reported that property type, location, firm size, financial policy, management style and institutional investors’ participation is an important elements in measuring performance of Malaysian REITs (Abdul Jalil and Mohd Ali, 2015). Moreover, one of the most contributing factor of Islamic REITs performance was said to be the ability to increase market capitalization whereby increased in market capitalization can lead to increased performance of REITs (Ma’in et al., 2016).
6. RISK AND MANAGEMENT OF REITS
Basically, investors decide to insert REITs in their investment portfolio to reduce risk and have higher return. Many studies have been conducted to investigate the risk-return relation of REITs such as Aktan and Ozturk (2009) and Sing and Loh (2014). On the other hand, there are also studies did by the scholars to determine the appropriate tools that can measure REITs efficiently with regards to its risk and profitability (Chuweni and Eves, 2017).
De Francesco (2007) studied the gearing in Australian real estate investment market, specifically by examining the relationship between return, risk and gearing. The paper concluded higher risk affected to higher gearing levels. Other things highlighted was that gearing does not result to better risk-adjusted return.
7. CONVENTIONAL VS. ISLAMIC REITS
Among the articles found related to REITs, one of the most popular topic discussed by scholar is the comparison between conventional and Islamic REITs. The most distinctive features definitely would be the added value in fundamentals of Islamic REITs which is guided by Shari’ah principles and thus promotes Shari’ah compliance products and services. This distinctive feature was said to be one of the factors in efficient REITs (Chweni et al., 2017). In relation with that, many scholars compared these two types of REITs by investigating whether they behave differently in terms of performance.
Mohamad and Mohd Saad (2012) analyzed the performance of both REITs in Malaysia and concluded that conventional REITs performed better than Islamic REITs although Islamic capital market was very developed in the country. However, they suggested further study as the conclusion might be due to the limited information related to Islamic REITs. Mohamad (2015) manage to prove that Islamic REITs performed better than conventional REITs. It was proved by comparing their performance in a five-year period from 2009 to 2013 in terms of dividend yield, distribution per unit, net asset value and earning per unit. This findings is line with Foo and Razali (2015) who gave similar conclusion which is Islamic REITs shows stronger performance than conventional REITs in terms of abnormal return. Furthermore, Islamic REITs have lower systematic risks compared to conventional REITs (Foo and Razali, 2015; Razali and Sing, 2015). Thus, they suggested that Islamic REITs is more useful for the investors as an opportunities to diversify their portfolio risk and protect them against market volatilities thus getting a promising return.

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8. ISSUES, OPPORTUNITIES, AND CHALLENGES OF REITS
As stated earlier, Islamic REITs claims to provide better advantages in through asset al.location and risk diversification in the investment portfolio (Chuweni and Eves, 2015). Individually, Chiang et al. (2013) said that REITs was not a good defensive investment strategy during crisis as it has significant correlation with stock market. However, when comparing with Islamic REITs, discussion in the previous section of this paper implies that Islamic REITs works better in a period of economic crisis. Rozman et al. (2015) stated that Islamic REITs can function as an investment property to hedge against inflation. Apart from that, Islamic REITs was seems to be a useful instrument in the development of waqf institutions (Hasan and Sulaiman, 2016). With a proper planning and implementation, Islamic REITs can be a useful mechanism in waqf asset financing. Last but not least, it was found that the investment opportunities for Islamic REITs was extended to the Middle East countries due to creation of exciting mega project and demand within and outside of the region as a result of increasing oil prices (Kamsani and Leung, 2005).
Several issues were found in the establishment and operations of REITs. For instance, there was a lack of standardization in screening methodology of Malaysian Islamic REITs and Singapore Islamic REITs. Islamic REITs was also seems to have a close identity with Socially Responsible Investment (SRI) or simply known as equity investment (Chuweni and Eves, 2015). Zainuddin and Nordin (2016) highlighted the governance issue in the practice of Islamic REITs in Malaysia. It was found that information regarding members of Shari’ah Advisory Board/Committee and their qualification were not disclosed properly in the annual report of Islamic REITs companies. Furthermore, in some REITs companies, the term of appointment of Shari’ah Advisory Committee was claimed to be too long. Other than that, elements of Islamic auditing or reporting were ambiguous.
Despite that, some challenges has to be noted to ensure the progressive growth of REITs, specifically Islamic REITs. Most importantly, the biggest challenges is to capture more investors to consider Islamic REITs in their portfolio (Chuweni and Eves, 2015). In Indonesia, challenges was faced in the implementation of Islamic REITs. Besides tax rate issue, other concern stated by Sintarini (2017) was REITs was yet to be well known in the country as a part of investment in mutual funds. There was also lack of awareness in the need of protecting Shari’ah principles among Muslims there. Lastly, further study has to be made to confirm whether yield of Islamic REITs is higher or lower than conventional REITs. According to Rozman et al. (2015), the potential of Islamic REITs was restricted due to prohibition of certain activities that does not comply with Shari’ah principles. Therefore, new alternatives is needed to attract more investors towards Islamic REITs.
9. CONCLUSION
The objective of this paper is to provide an explanation of Real Estate Investment Trusts, including both conventional and Islamic REITs. Studies on Malaysia REITs was found mostly in the survey compared to REITs of other country. This might be due to the vast growth of Islamic Capital Market and Islamic REITs in Malaysia.
REITs has been implemented since 1960s in U.S and later Islamic REITs was introduced by Securities Commission in Malaysia. Besides Malaysia, tremendous development of REITs and Islamic REITs has been witnessed around the world. Performance trends shows by most studies are Islamic REITs perform better than conventional REITs. Compared to conventional, Islamic REITs is said to have more advantage for the investors. For example, it is believed that investors should engage with Islamic REITs during financial crisis. Other than that, many scholars tried to identify the determinants of REITs performance. Results shows that there are many factors that can influence the performance of REITs like economic factors, management and firm size.
In a nutshell, this literature survey concludes that REITs is an important elements in promoting growth of Islamic Capital Market and investors are recommended to include this medium of investment in their portfolio.