Five REITs listed in KSA and UAE in 10 months

Kuwait Times - - BUSINESS -

Mar­more MENA In­tel­li­gence, a sub­sidiary of Kuwait Fi­nan­cial Cen­tre “Markaz”, re­cently re­leased a re­port ti­tled ‘REITs in GCC: Reg­u­la­tory hur­dles per­sist’, an­a­lyz­ing the pre­vail­ing cir­cum­stances and fu­ture prospects for REITs in the re­gion.

Five REITs have been listed in GCC, four in Saudi Ara­bia and one in the UAE within a span of 10 months, higher than the num­ber of IPOs in the re­gion. This sud­den emer­gence of an al­ter­nate as­set class au­gurs well for the melan­cholic in­vest­ment cli­mate and makes avail­able di­ver­si­fied prod­ucts such as ex­change traded funds, de­riv­a­tives and REITs for its af­flu­ent and high net worth in­di­vid­u­als who have till now searched be­yond borders for al­ter­na­tive in­vest­ment prod­ucts. His­tor­i­cal re­turns in the US in­di­cate that REITs can be used as a hedge against in­fla­tion. List­ing of REITs also im­proves the trans­parency in real es­tate mar­ket en­cour­ag­ing pri­vate play­ers to in­vest in res­i­den­tial as well as com­mer­cial projects. The growth of the real es­tate sec­tor will trans­late into more jobs and di­ver­si­fi­ca­tion of the econ­omy. Hence, an or­ga­nized real es­tate mar­ket with al­ter­nate fund­ing mech­a­nisms is of ut­most im­por­tance and will de-stress the banking sys­tem. In­tro­duc­tion of REITs will fur­ther aug­ment the na­tion­al­iza­tion pro­gram in GCC, as the con­tri­bu­tion of na­tion­als in the real es­tate sec­tor is high.

GCC, is home to one of the most ac­tive real es­tate mar­kets but de­vel­op­ment of REIT’s has been a prob­lem due to sev­eral hur­dles. A key im­ped­i­ment to the growth of REIT’s in the re­gion is reg­u­la­tions. In most of the coun­tries in GCC, for­eign own­er­ship is re­stricted (wholly or par­tially) in real es­tate. Own­er­ship lim­its are also lim­ited in cap­i­tal mar­kets for in­ter­na­tional in­vestors. There are also lever­age reg­u­la­tions placed on the real es­tate in­vest­ment trusts. For in­stance, in KSA, a REIT is­suer’s lever­age is re­stricted to 50 per­cent while in coun­tries such as USA and Canada there is no re­stric­tion on the debt lev­els. Lib­er­al­iz­ing the lim­its on for­eign own­er­ship will be one of the prime mea­sures for de­vel­op­ing sec­ondary mar­kets for such prod­ucts. GCC na­tions also need to em­pha­size on im­prov­ing the mar­ket in­fra­struc­ture such as adopt­ing a com­mon set­tle­ment cy­cle that is widely ac­cepted, de­vel­op­ing de­liv­ery ver­sus pay­ment sys­tems apart from im­prov­ing the trans­parency and dis­clo­sure mech­a­nisms that are cur­rently lag­ging be­hind.

UAE and KSA are among the fore­run­ners in the re­gion to have in­tro­duced reg­u­la­tions that are ac­com­moda­tive for the list­ing of REITs. Cur­rently both th­ese coun­tries to­gether have col­lected a cor­pus of about USD 630 mil­lion. Bahrain too has fol­lowed suit and has re­cently en­listed elab­o­rate pro­ce­dures for list­ing REITs. Sharia com­pli­ant Is­lamic REITs have also been de­vel­oped and has been re­ceived fa­vor­ably by in­vestors. While the REITs mar­ket is still at a nascent stage, it is surely show­ing signs of mov­ing in the right di­rec­tion.

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