What is your property portfolio?
The real estate investment trusts (REITs) are very popular investment vehicles in US having laws that were enacted in 1960. Although the name seems less familiar but these have become popular in the Far East.
These tax-privilege entities have been introduced by many countries. The investors in UK and Germany have this option since the start of the year. According to young’s global REIT report 2006 and Ernst, the market capitalization for REITs stands at $608 billion making its presence felt in global economy.
The investment trust law was passed in Dubai last August due to which many REITs are expected to be listed this year forming liquidity pools for property market.
Australia’s Macquarie bank and Abu Dhabi commercial Bank were supposed to launch a $2 billion DIFC REIT last month, to be listed on DIFX. It is yet to materialize.
The standard structure for REIT was conceived to create investments for Dubai real estate in a securitized form i.e. in investment units rather than a piece of real estate itself. Therefore it is a collective investment scheme designed in a unitized structure.
Investment perspectives:
Compared to equities, REITs give higher yields, often as much as five percent. They are considered more desirable due to required transparency and disclosure as compared to other property development schemes.
But awareness is required about the inverse relationship of REITs with interest rates. The prices of REITs shoot up when rates decline leading to a drop in yield. But yield rises when rates rise, allowing prices of REITs to go down.
For assets like real estate, the REITs or so called closed-end funds are better investments unlike open-ended or mutual real estate funds which are prone to redemption and money issues.
The director supervision at Dubai Financial services Authority (DFSA), Simon Gray expressed the rationale for the institute by saying that the investment objective in income generating real estate is engineered to distribute 80 percent of the income generated amongst the unit holders. He confirmed that tax advantages that are one of the drivers of REITs across the world are just an academic point here. He also added that providing facilities to investors for investing in these trusts and thereby getting advantages of professional management, higher liquidity, diversified portfolio and reduced risk also allows individuals to make small investments to create a stable income stream for themselves.
How should a local investor go about receiving REITs?
REIT must be a public fund in Dubai distributing 80 percent of annual income and should not be invested only in a single property. The CEO of Emirates financial services Suresh Kumar points out the challenges in store for REITs. He says that these have taken a long time to come here and are still not a specific example. Therefore to host this new comer, some adjustments have to be made in the ongoing investment culture.
For small investors looking at short term capital gains it may hold as challenge to present something with a stable and long term bond like structure. It would be of benefit to institutional investors or for instance pension funds, i.e. for those looking at mixed income type investment; however the risk friendly investors may not find it very appealing.
The head of research at Shuaa Capital, Walid Shihabi considers it very appropriate to introduce the REITs in the market. He believes that these are a means for opening up the Real estate sector as an investment avenue without small investors involving with specific risks. He described this as having nothing to do with the current real estate cycle in terms of prices, although it has a lot to do with market’s development and maturity status. He exclaims that property owner laws are much clear these days. According to Shihabi the right time to invest in REITs would depend on their property portfolio, expected yields and track records along with the expectations of performance.
Gray from DFSA refers to the stock market which had drastically declined last year. He feels that the demand-price regime would reinforce the investment scenario here. He adds that people want to see diversity which can come with a degree of flexibility along with avoiding the concentration of risk.
These tax-privilege entities have been introduced by many countries. The investors in UK and Germany have this option since the start of the year. According to young’s global REIT report 2006 and Ernst, the market capitalization for REITs stands at $608 billion making its presence felt in global economy.
The investment trust law was passed in Dubai last August due to which many REITs are expected to be listed this year forming liquidity pools for property market.
Australia’s Macquarie bank and Abu Dhabi commercial Bank were supposed to launch a $2 billion DIFC REIT last month, to be listed on DIFX. It is yet to materialize.
The standard structure for REIT was conceived to create investments for Dubai real estate in a securitized form i.e. in investment units rather than a piece of real estate itself. Therefore it is a collective investment scheme designed in a unitized structure.
Investment perspectives:
Compared to equities, REITs give higher yields, often as much as five percent. They are considered more desirable due to required transparency and disclosure as compared to other property development schemes.
But awareness is required about the inverse relationship of REITs with interest rates. The prices of REITs shoot up when rates decline leading to a drop in yield. But yield rises when rates rise, allowing prices of REITs to go down.
For assets like real estate, the REITs or so called closed-end funds are better investments unlike open-ended or mutual real estate funds which are prone to redemption and money issues.
The director supervision at Dubai Financial services Authority (DFSA), Simon Gray expressed the rationale for the institute by saying that the investment objective in income generating real estate is engineered to distribute 80 percent of the income generated amongst the unit holders. He confirmed that tax advantages that are one of the drivers of REITs across the world are just an academic point here. He also added that providing facilities to investors for investing in these trusts and thereby getting advantages of professional management, higher liquidity, diversified portfolio and reduced risk also allows individuals to make small investments to create a stable income stream for themselves.
How should a local investor go about receiving REITs?
REIT must be a public fund in Dubai distributing 80 percent of annual income and should not be invested only in a single property. The CEO of Emirates financial services Suresh Kumar points out the challenges in store for REITs. He says that these have taken a long time to come here and are still not a specific example. Therefore to host this new comer, some adjustments have to be made in the ongoing investment culture.
For small investors looking at short term capital gains it may hold as challenge to present something with a stable and long term bond like structure. It would be of benefit to institutional investors or for instance pension funds, i.e. for those looking at mixed income type investment; however the risk friendly investors may not find it very appealing.
The head of research at Shuaa Capital, Walid Shihabi considers it very appropriate to introduce the REITs in the market. He believes that these are a means for opening up the Real estate sector as an investment avenue without small investors involving with specific risks. He described this as having nothing to do with the current real estate cycle in terms of prices, although it has a lot to do with market’s development and maturity status. He exclaims that property owner laws are much clear these days. According to Shihabi the right time to invest in REITs would depend on their property portfolio, expected yields and track records along with the expectations of performance.
Gray from DFSA refers to the stock market which had drastically declined last year. He feels that the demand-price regime would reinforce the investment scenario here. He adds that people want to see diversity which can come with a degree of flexibility along with avoiding the concentration of risk.
posted by Property Reporter at
10:54 PM
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