REITs are real estate investment funds available to the public, with their units traded in the financial market. They aim to facilitate investment in developed real estate and properties ready for use that generate periodic and rental income.
REITs are real estate investment funds available to the public, with their units traded in the financial market. They aim to facilitate investment in developed real estate and properties ready for use that generate periodic and rental income.
Traded Real Estate Investment Trusts are characterized by lower investment costs compared to other real estate funds, and they commit to distributing a minimum of 90% of their net profits periodically (annually).
These funds can invest locally, regionally, and globally, provided that the total value of the fund's real estate assets outside the kingdom does not exceed 25%, in accordance with clear and specific policies set by the Financial Market Authority.
Like other investment instruments in the financial market, Traded Real Estate Investment Trusts are subject to regulation and supervision by the Financial Market Authority and the Saudi Stock Exchange (Tadawul), each according to its jurisdiction.
The financial market regulations also require Traded Real Estate Investment Trusts to maintain high levels of transparency and disclosure, surpassing those imposed on investment options available in the traditional real estate market.
1- Conditional Return: The profits distributed to the unit holders must not be less than 90% annually of the net profits of the fund.
2- Ease of Investment: Traded Real Estate Investment Trusts are characterized by clear regulations and the ease of dealing with their units – buying and selling – in a manner similar to the listed stocks in the financial market.
3- Existing Properties: Traded Real Estate Investment Trusts contain established and developed real estate assets that are ready for use and generate income from rentals or operations.
4- High Transparency: The fund manager is committed to providing periodic reports about the fund, which are displayed on the Tadawul website, similar to other reports of companies listed in the financial market.
5- Outperformance During Recessions: REITs have historically outperformed both private real estate and the broader stock market during and after the last six recessions (1-2). This resilience suggests that REITs can be a strong investment choice during periods of economic uncertainty, such as the slower economic growth expected in 2024.
6- Diversification and Risk Mitigation: Investing in REITs allows for diversification across various real estate assets like office buildings, shopping malls, and residential complexes. This diversification mitigates risks compared to investing in a single property, as the performance of one property has less impact on the overall investment. Diversification is a key strategy in managing investment risk.
7- Widespread Institutional Investment: A significant portion of global institutional investors, about 64%, include REITs in their portfolios. This widespread adoption reflects the trust and value that large-scale investors place in REITs as a stable and profitable investment vehicle.
Saudi Arabia's entry into the REIT market was marked by the Capital Markets Authority's (CMA) approval for REIT listings in 2016, aligning with the Saudi Vision 2030. This decision led to a significant increase in REIT listings on Saudi stock exchanges.
As of December 2023, the Saudi Arabian REITs industry is composed of 19 companies. This growth has been supported by a significant increase in industry profits and an annual revenue growth of 17%. However, the industry's current Price-to-Earnings (PE) ratio is lower than its three-year average, suggesting a more conservative market valuation.
The emergence and growth of Real Estate Investment Trusts (REITs) in Saudi Arabia represent a significant trend in the region's financial landscape. These developments are part of a broader movement within the Gulf Cooperation Council (GCC) region, where the REIT industry is expected to expand from USD 9.58 billion in 2023 to USD 14.23 billion by 2028, showing a compound annual growth rate (CAGR) of 8.24%.
Here's a table comparing Real Estate Investment Trusts (REITs) and Real Estate Investment Corporations (REICs):
The emergence and growth of Real Estate Investment Trusts (REITs) in Saudi Arabia represent a significant trend in the region's financial landscape. These developments are part of a broader movement within the Gulf Cooperation Council (GCC) region, where the REIT industry is expected to expand from USD 9.58 billion in 2023 to USD 14.23 billion by 2028, showing a compound annual growth rate (CAGR) of 8.24%.
Saudi Arabia's entry into the REIT market was marked by the Capital Markets Authority's (CMA) approval for REIT listings in 2016, aligning with the Saudi Vision 2030. This decision led to a significant increase in REIT listings on Saudi stock exchanges. However, the rapid growth also revealed challenges, such as the steep decline in share prices and market capitalizations of some REITs during the economic crisis triggered by the COVID-19 pandemic.
As of December 2023, the Saudi Arabian REITs industry is composed of 19 companies. This growth has been supported by a significant increase in industry profits and an annual revenue growth of 17%. However, the industry's current Price-to-Earnings (PE) ratio is lower than its three-year average, suggesting a more conservative market valuation.
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