REITs A Liquid Alternative to an Illiquid Asset Class

Kuwait: December 14, 2017

The first GCC country to introduce a legal framework pertaining to REITs was the UAE, specifically the Emirate of Dubai through the Dubai Financial Services Authority in 2006

HIGHLIGHTS

  • The benefits of a REIT are straight forward when compared to owning a property outright such as liquidity and exposure to a diversified pool of assets while drawbacks include susceptibility to market sentiment and equity volatility and management’s limited ability to reinvest in existing assets.
  • From 2007 to September 2017, the number of global REITs has increased from 348 to 736 with the average global REIT value increasing 17.8% from USD 2.02 billion to USD2.37 billion.
  • Despite there not being a clear outperformer between REITs and major equity indices, a main reason for including REITs in a portfolio is to gain exposure to a diversified pool of income generating real estate. The yield on REITs is clearly greater than that obtained from equities.
  • The GCC real estate market is full of stable and mature residential and commercial assets. The abundance of assets will promote REIT growth, while the different type of assets will allow for specialization.
  • Institutional and individual investors and real estate developers and owners all stand to benefit as the GCC REIT market expands and matures. Investors will ultimately gain liquidity, a fundamental need in today’s geopolitical landscape, while investing in a preferred asset class.