Yield-hun­gry in­vestors gain from an al­ter­nate as­set class as re­turns rise

Gulf News - - Your Money -

here are more Real Es­tate In­vest­ment Trusts (Reit) flood­ing the mar­ket than the Ini­tial Pub­lic Of­fer­ings (IPOs) by com­pa­nies.

Five Reits worth $630 mil­lion (Dh2.3 bil­lion) have been listed in the 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, ac­cord­ing to a re­port pub­lished by Mar­more Mena In­tel­li­gence.

“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,” Mar­more said.

The re­turns have also been at­trac­tive so far. For ex­am­ple, Emi­rates Reit had a re­turn of 10 per cent in 2016, com­pared to 13 per cent gains in Dow Jones In­dus­trial Aver­age.

An­other in­vest­ment op­tion — gold, which is con­sid­ered as an in­fla­tion hedge, was al­most flat at $1,150 an ounce.

Not only does it serve in­vestors as a di­ver­si­fi­ca­tion tool, it also pro­vides the de­vel­op­ers with al­ter­nate fund­ing mech­a­nism, de-stress­ing the bank­ing sys­tem. “In­tro­duc­tion of Reits will fur­ther aug­ment the na­tion­al­i­sa­tion pro­gramme in GCC, as the con­tri­bu­tion of na­tion­als in the real es­tate sec­tor is high,” Mar­more said.


The de­vel­op­ment of Reit’s have been a prob­lem due to sev­eral hur­dles and one of them is reg­u­la­tions.

In most GCC coun­tries, for­eign own­er­ship is re­stricted 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 Saudi Ara­bia, a Reit is­suer’s lever­age is re­stricted to 50 per cent while in coun­tries such as USA and Canada there is no re­stric­tion on the debt lev­els.

“Lib­er­al­is­ing the lim­its on for­eign own­er­ship will be one of the prime mea­sures for de­vel­op­ing se­condary mar­kets for such prod­ucts. GCC na­tions also need to em­pha­sise 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,” Mar­more said.

UAE and Saudi Ara­bia are among the first 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 $630 mil­lion. Bahrain too has fol­lowed suit and has re­cently en­listed elab­o­rate pro­ce­dures for list­ing Reits.

Lim­ited op­tions with IPOs

As far as IPO’s are con­cerned, in­vestors have lim­ited op­tions as fewer in num­ber have come to the mar­ket, but that is ex­pected to change, ac­cord­ing to an­a­lysts.

“Many ex­pected 2017 to be promis­ing for the UAE. How­ever, the mar­ket has only wit­nessed one IPO dur­ing the first half of 2017. While the DFM and the ADX have put in place an in­creas­ingly ef­fi­cient and flex­i­ble regime for pub­lic of­fer­ings, ex­ter­nal fac­tors are also im­por­tant for de­ter­min­ing in­vestor ap­petite for new flota­tion,” said Shailesh Dash, Founder and CEO, Al Masah Cap­i­tal.

In terms of IPO per­for­mance in the se­cond quar­ter of 2017 com­pared to the same pe­riod in the pre­vi­ous year, the num­ber of of­fer­ings has in­creased marginally, with three IPOs in the se­cond quar­ter com­pared to two in the same pe­riod last year. The to­tal pro­ceeds raised in the se­cond quar­ter of 2017 was 38 per cent lower com­pared to the se­cond quar­ter of 2016.

“Fur­ther im­pe­tus for the UAE IPO mar­ket will only come from the gov­ern­ment and reg­u­la­tor if the list­ing re­quire­ments are made much lighter and flex­i­ble, which will en­cour­age lo­cal com­pa­nies to list in the UAE rather than con­sid­er­ing in­ter­na­tional mar­kets,” Dash added.

Source: reit.ae

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