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What is a Real Estate Investment Trust (REIT)?

A real estate investment trust is a mutual fund that enables investors to pool their money to buy real estate assets instead of stocks; it is a company that owns, operates, or finances income-generating real estate and offers investors one of the most attractive means to diversify their real estate portfolios.

With the sole aim of generating income, REITs pool the capital of numerous investors and make it possible for individual investors to earn higher-than-usual dividends along with capital appreciation from real estate investments - without having to buy, manage, or finance any properties themselves.

REITs entered the global market in the 1960s in the United States and has since provided investors with tax efficient investment vehicles. While new to the Gulf and the UAE, REITs first emerged in Dubai in 2006 and gained momentum in 2014, while in the Kingdom of Saudi Arabia, the law governing REITs was finalised in 2016 and by the end of 2019, there were 17 REIT funds listed on the Tadawul (KSA Stock Exchange).

For investors, the decision to incorporate REITs into their portfolio can be attributed to the ease and liquidity of investing with the opportunity to own and profit from real estate.

There are different kinds of REITs; however, they can all be classified in either Equity REITs, which focus on a specific sector of properties; residential, office, education, retail, hospitality, warehouses, or Mortgage REITs; which invest in mortgages or mortgage-backed securities or mortgage-related assets.

Snapshot of REITs globally:

Are there any REITs in the Middle East?

  • Kingdom of Saudi Arabia now has 17 REITs listed on the stock exchange
  • In the UAE, there are currently two listed REITs - Emirates REIT and ENBD REIT
  • In Bahrain, at least 80% of a REIT’s net asset value must be derived from a property rental business consisting of at least two properties with a minimum valuation of USD 20 million.

REITs in Europe

  • Europe is home to 194 REITs, valued at a total of €210bn.
  • Spain has 71, making it the largest by number of companies, with a total market capitalisation of $26.14bn.
  • The UK, which joined the REIT regime in 2007, has 55 REITs with a total market capitalisation of $72.87bn, making it the biggest by size.
  • Multi-billion-euro REITs are spread across the major property types of residential, office, retail and industrial, through to more niche sectors, such as hotels, data centre and student accommodation.

REITs in North America

  • REITs must have at least 100 shareholders.
  • Have no more than 50% of its shares held by less than five individuals.
  • Distribute at least 90% of its annual taxable income in dividends.
  • More than 75% of a REITs income must derive from real estate assets.

REITs in Asia Pacific

  • REITs in Asia-Pacific saw healthy returns in 2019, outperforming equities in the region.
  • Singapore has garnered a reputation in the region as the preferred marketplace for REITs to be listed.
  • Japan has the largest REIT market in Asia-Pacific, with a total market cap of ¥14.9trn (€130bn)
  • The number of REITs is shrinking in Australia due to ongoing mergers and acquisitions, even though the continent has the most established market in the region.

 

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