Property developers welcome approval of REIT funds

The Oman Real Estate Association (ORA), which groups some of the nation’s biggest and most prominent property developers and investors, has broadly welcomed the Capital Market Authority’s (CMA) recent decision to approve the introduction of Real Estate Investment Trust funds (REITs) in the Sultanate.

The move, according to a senior executive of the industry grouping, bodes well for stronger investment inflows into the property sector in the Sultanate.

“REITS is a good vehicle that promises to bring liquidity into the real estate market and encourage developers to come up with different real estate products for investors,” said Hassan Juma al Lawati, Vice Chairman of ORA.

The Association, headed by Mohammed bin Salim al Busaidi as its Chairman, has long advocated for the introduction of REITS, which eventually received the endorsement of the National Programme for Enhancing Economic Diversification (Tanfeedh).

A Real Estate Investment Trust is defined as a security that sells like a stock on exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets), and their revenues come principally from their properties’ rents.

Speaking to the Observer, Al Lawati said REITs will enable developers to divest from their projects and move on to other developments, thereby driving growth in the property sector. “It offers an exit strategy to developers who can then go on to developing other projects,” he said.

Additionally, REITs offer small investors the opportunity to be part of large developments that would otherwise be off-limits to them because of the substantial cost of such projects. “Take, for example, a shopping mall, which typically entails a huge investment. By buying REIT units in the project, small players can be part of this development.”

“Besides, REITs are a liquid asset class that can be traded on the stock market, much like stocks and funds. They generate a fixed rate of income every year for the investors, thereby contribute to a good cash flow.”