Abu Dhabi exchange planning to list real estate funds

06 July 2010

Exchange currently seeking approval from UAE regulator

The Abu Dhabi Securities Exchange (ADX) hopes to boost its low trading volumes by launching Real Estate Investment Trusts (Reits) before the end of 2010. Volumes on the ADX have declined by 5.1 per cent to date this year.

“We are working hard to introduce Reits onto the exchange before the end of the year,” says Elie Ghanem, head of market and product development at the ADX.    

“These are funds which serve as a collective investment scheme which enable an investor to partake in the real estate sector without actually buying a property.”

REITs are a security that sells like a stock on an exchange and invests in various kinds of real property, property-related assets and units in audited property funds. Investors contribute to the fund which buys and operates a real estate project, with all investors sharing in the profit.  

On average, the trusts deliver returns ranging from 5 to 10 per cent.

Ghanem says the ADX is currently seeking approval from the UAE’s stock market regulator, the Emirates Securities and Commodities Authority (SCA), to launch the funds.

“Reits offer great flexibility as they require no minimum investment and a wide range of residential and commercial property investment opportunities such as office buildings, shopping centres, residential towers and hotels,” he adds.

The key advantages of such a fund is that they are highly liquid unlike real estate and are considered more secure because they provide investors with diversity in a portfolio which has the benefit of spreading risk. The main drawback is that investors have no control over the purchase, management or sale of properties.    

Industry insiders have commented that this is an opportune time to pool funds and consolidate assets under a Reit vehicle given the current low valuation of real estate assets in the UAE, especially in Dubai.

The potential value of investments fitting Reits structures in the GCC has been estimated at about $402.6bn by CB Richard Ellis Financial Services Middle East. The company states that Saudi Arabia offers the biggest potential market with about 52 per cent of investable universe through these funds, followed by the UAE with 20 per cent.

The Dubai Financial Services Authority (DFSA) became the first regulatory body in the Mena region to introduce internationally benchmarked Reits in August 2006. These trusts must distribute at least 80 per cent of their annual income to shareholders.

The earliest established trust in the GCC was the seven-year $200m Arabian Rreit (Areit) launched by HSBC Bank Middle East and Abu Dhabi government-owned asset management firm Daman.

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