UAE: In a bid to access property portfolios without owing underlying assets, Individual retail investors are looking at real estate investment trusts (REITs). This not only gives investors exposure to different asset classes but, also reduces the risk associated with owning a property.
Reits own income-producing real estate. These funds are legally bound to distribute a share of their income to the shareholders as dividends.
Talking about the development, Craig Plumb, head of research – real estate/property for JLL in UAE (Dubai, Abu Dhabi) and wider Mena region said “REITs are a relatively new and under-represented sector in the UAE. Reits listed in the Dubai and Abu Dhabi markets for the past 10 years, but there are currently a handful of active REITs and representing only a small portion of all the investors.”
UAE’s first Reit was established by Equitativa, known as Emirates Reit in 2010. Targeted at investors, who want to pick up assets along China’s Belt and Road initiative, the Reit manager has now launched a new product, named as Belt & Road Reit.
“B&R Reit was launched along with a Chinese firm, Affluent Partners. It will be a diversified Reit, including hospitality, industrial, warehouse, and office assets. Ranging from Japan to the UAE, the Reit will invest in B&R countries. In the first phase, Chinese partners will help raise between $200 million to $500 million” said group chairman of Equitativa, Sylvain Vieujot.
In order to market the B&R Reit, Equitativa will take out a road show with its Chinese partners to promote it in the Middle East at a later stage. With the focus on UAE, Equitativa has two existing Reits. Emirates Reit has a portfolio of offices and schools in the UAE worth $1 billion. All assets of Emirates Reit will be expanded at a later stage.
The company launched a second private Residential Reit in Abu Dhabi. It has a portfolio of residential property in Dubai, Abu Dhabi and Ras Al Khaimah worth Dh1.2 billion.
Haider Tuaima, the head of real estate research, ValuStrat said “REITs are listed on the stock market to allow investors to buy and sell shares in any volume whenever they wish. They provide ordinary investors with an opportunity to enter a market, which is otherwise unaffordable for them.”
Through a variety of market conditions with yields significantly higher on average than other equities, REITs have produced a steady stream of income, said Nasdaq Dubai.
Equitativa believes the current soft UAE property market offers very exciting opportunities. “When the market is at its bottom, it is a right time to buy a property. The Reit market in the UAE has a lot of potential for growth. But, it is challenging to launch a Reit at the moment as the market is still in a nascent stage,” added Vieujot.
Regulations have permitted REITs in the DIFC since 2006. Dubai Financial Market has not only published rules on listing and trading of investment funds and REITs but also signed a MoU with the Dubai Land Department recently. The move was taken to encourage and provide opportunities to real estate companies in the financial market.
“The market is well regulated in both Dubai and Abu Dhabi. Although the regulatory framework is relatively recent, it provides an adequate framework rather than a constraint to new trusts,” said Plumb.
Talking about the disadvantages of REITs, Tuaima said that they cannot be directly leveraged by way of a mortgage and some of the funds have limited options for exit.
On the other hand, Plumb warned investors to watch out for the quality of underlying assets in REITs. “A number of these funds do not offer the benefits of diversity offered by larger trusts overseas as they have only purchased a small number of assets so far.”
He also said that the returns available from Reits will be dependent on market conditions, as is the case with other investments. According to him, the current depressed nature of market conditions in the UAE will act as a constraint on the performance of REITs.