How Efficient are Alternative Financial Institutions? An Empirical Investigation of Islamic REITs in Malaysia

Nor Nazihah Chuweni, Chris Eves, Viet-Ngu Hoang, Ihsan Isik and M. Kabir Hassan

Journal of Real Estate Literature, 2017, vol. 25, issue 1, 107-139

Abstract: The literature shows that despite Sharia-compliant restrictions, Islamic real estate investment trusts (REITs) exhibit higher financial returns than conventional trusts. However, efficiency analysis that directly assesses the effect of Sharia-compliant is lacking. This paper provides the first such analysis of Malaysian REITs from 2007 to 2015. The findings show that Malaysian REITs can reduce their inputs consumption by 35.8% without reducing outputs, implying a significant potential for improvement. Nevertheless Islamic REITs achieve higher efficiency levels than conventional REITs, indicating that the Sharia-compliant effect is positive. The findings suggest that REITs can increase efficiency through good governance, capitalization, and diversification.

Date: 2017
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DOI: 10.1080/10835547.2017.12090444

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