Measuring Technical Efficiency of Malaysian Real Estate Investment Trusts: A Data Envelopment Analysis Approach

Abstract

The research examines the technical efficiency (TE) and economies of scale for the Malaysian Real Estate Investment Trust (M-REITs) from 2010 to 2014, using a non-parametric approach of Data Envelopment Analysis (DEA). The nonparametric approach of Variable Return to Scale DEA (VRS-DEA model) was used to estimate the efficiency scores for M-REITs. The negative inefficient value for the technical inefficiencies is identified as a result of both poor input utilisation (managerial inefficiency) and failure of M-REITs to operate at optimum scale (scale inefficiency). The mean technical efficiency (TE) measures ranged from as low as 41.70% in 2011 to as high as 84.30% in 2014. Despite having the Sharia requirement, Islamic REITs in Malaysia provide an effective investment opportunity evidenced by the higher scores for all efficiency measures, as compared to conventional REITs for the period under study. Pure technical inefficiency has a greater deviation in the efficient frontier than scale inefficiency, suggesting that M-REITs inputs are not fully minimised to produce more outputs. With regard to scale inefficiency, M-REITs are operating at economies of scale, indicating the importance of expansion or growth to improve on efficiency performance. This will then allow M-REIT managers to formulate better strategic investment decisions.

Volume 19 : 2021 Issue 3

“…However, technical inefficiency has a greater deviation in the efficient frontier compared to the ineffective scale (Chuweni, 2019). In road construction, technical requirements include the speed of the plan, width, capacity, driveways, intersections of complementary buildings, equipment, usage according to their functions, and the ability to meet the security, safety, and environmental needs.…”

The significance and performance analysis of Malaysian real estate investment trusts

“…The performance of M-REITs are also measured using the non-parametric approach of data envelopment analysis in terms of efficiency and productivity performance (Chuweni and Eves, 2017, 2019; Chuweni et al , 2017; Chuweni et al , 2019; Chuweni et al , 2018). Islamic REITs exhibited higher efficiency and productivity performance as compared to their counterparts (Chuweni and Eves, 2019; Chuweni et al , 2017).…”

“…The performance of M-REITs are also measured using the non-parametric approach of data envelopment analysis in terms of efficiency and productivity performance (Chuweni and Eves, 2017, 2019; Chuweni et al , 2017; Chuweni et al , 2019; Chuweni et al , 2018). Islamic REITs exhibited higher efficiency and productivity performance as compared to their counterparts (Chuweni and Eves, 2019; Chuweni et al , 2017). The higher efficiency indicates that the additional requirement of Islamic REITs did not hinder their performance in terms of efficient utilisation of the resources to maximise the profit of the shareholders.…”

Operational and investment efficiency of investment trust companies: Do foreign firms outperform domestic firms?

“…More recent innovative DEA applications on ITCs include , who proposed a trend analysis technique to forecast the future efficiency scores of each ITC. , Chuweni et al (2021) and Chuweni (2019) examined the efficiency scores of Malaysian real estate investment trusts. Meanwhile, Lin and Liu (2021) applied a DEA model based on a directional distance function to mutual funds in the U.S. and found good practical value for mutual fund portfolio selection.…”