Purpose This paper aims to present a conceptual model on the efficiency of Islamic real estate investment trusts (I-REITs) available in Malaysia. The key difference between the Islamic and their conventional investment vehicle part is mainly its own Shariah framework. For instance, I-REITS must comply with the requirement of Securities Commission Act 1993 as well as the Guidelines on Islamic Real Estate Investment Trusts (Islamic REITs Guidelines). Design/methodology/approach The paper reviews and synthesises the relevant literature on the performance analysis and efficiency measurements of REITs. The paper then develops and proposes a conceptual model to measure the efficiency of Malaysian and Islamic REITs. Findings The paper identifies and examines the appropriate methods and instruments to measure the efficiency in relation to the risk and profitability of I-REITs. The efficiency measure is important for the fund managers to maximise the shareholders’ return in an investment of property portfolio as well as proposing the best way to allocate resources efficiently. Research limitations/implications This is a preliminary review of current work that identifies the issues that will be addressed in future empirical research. The authors will be undertaking this future empirical research in measuring the efficiency of Malaysian real estate investment trusts (M-REITs), particularly the I-REITs, using the non-parametric approach of data envelopment analysis. Originality/value To date, there has been very limited research on the efficiency measurement of I-REITs. The current analysis of REIT has been focused on traditional non-Islamic funds. This paper will review and discuss the current literature on efficiency measurement to determine the most appropriate approaches and methodologies for future application in performance analysis of efficiency measure for Malaysian and Islamic REITs.

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.

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