13 December 2016
JEDDAH: Real estate investment traded funds (REITs) in Saudi Arabia will benefit the Kingdom’s economy and capital markets by offering investors more diversification, transparency, and greater accessibility to local real estate, Jadwa Investment said in a note on Monday.
“In the case of Saudi Arabia, REITs can facilitate the participation of the private sector in developing vacant land plots and raising the supply of real estate by bringing forward alternative sources of finance for the private sector,” it added.
“Besides their impact on capital markets, REITs can also help realize the broader goals of the National Transformation Program (NTP) and Saudi Vision 2030. Specifically, the NTP lists several initiatives which aim to increase the real estate sector’s contribution to overall Gross Domestic Product (GDP),” said the Jadwa researchers.
The Capital Market Authority (CMA) recently approved a set of rules allowing the formation of Real Estate Investment Traded Funds on the local stock exchange.
In Saudi Arabia, an REIT is defined as a closed-ended investment company which owns income-producing real estate.
Saudi REITs can invest in residential, commercial, industrial and agricultural properties, both within and outside the Kingdom but not in undeveloped ‘white’ land.
A maximum of 25 percent of a REITs’ total value can be invested outside Saudi Arabia, according to the report.
“REITs can be an effective hedge against inflation due to the nature of the real estate sector, with frequent rent reviews and asset appreciation,” said the economists.