Saturday, October 10, 2009

REITs can draw huge foreign direct investments into realty market

Several billion dirhams worth foreign direct investment may be poured into the real estate markets in the region through GCC-based Real Estate Investment Trusts (REITs), industry experts reveal.

According to Ahmad Saidali, Vice President, Fund Advisory and indirect investment at CB Richard Ellis Financial Services Middle East, opportunities exist for GCC or Dubai-based and managed REITs or such professionally managed investment schemes. This will help in attracting foreign direct investments into the region, particularly to Dubai real estate market.

REITs are regulated investment portfolios comprising several real estate assets and can be privately or publicly owned. They give access to property portfolios to individual investors, without actually owing assets. REITs are also considered more transparent and secure than other forms of real estate investment, usually offering six to eight percent returns.

According to Saidaili, the potential value of investments fitting REITs structures in the GCC is about $402.6bn (Dh.1.4trillion), depending on economic data for GCC from the World Bank.

Saudi Arabia is the biggest potential market for REIT structures and represents about 52 percent of investable universe through REITs. This is followed by UAE with 20 percent, Kuwait 16 percent, Qatar 6 percent, Oman 4 percent and Bahrain 2 percent, Saidali said.

Since 2006, more than 20 markets worldwide now have REIT regulations, including Dubai. This has helped in fuelling a global REIT market, worth more than $700bn in 2009, the consulting firm A.T. Kearney said.

However, if Dubai has to position itself as a fertile ground for REITs trading, it will face stiff competition from London, Singapore and more such cities.

The major benefit of setting up REITs is to permit international investors to diversify their portfolios by investing in varied real estate and funds, for instance in the Middle East. As for local investors, it offers an alternative to investing in local developer stocks or directly in properties.

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