Top five benefits of investing in GCC's REITs
ConstructionWeekOnline rounds up the advantages offered to investors, developers, and contractors by real estate investment trusts
Growth across the GCC's key real estate markets is driving the uptake of real estate investment trusts (REITs) in the region.
Indeed, the Middle East's long-term investors are eyeing REITs as a means of growth, an expert told ConstructionWeekOnline.
"Our view is that the growth of the REIT landscape is more likely to accelerate in the short- to medium-term," Anthony Taylor, fund manager for real estate at Emirates NBD Asset Management, said.
REIT adoption will benefit investors, developers, and even contractors in the Gulf, experts say.
The following pages outline the top five benefits that REITs offer to each of the construction groups mentioned above.
"The unique characteristics and features of a REIT, such as its portfolio of assets and focus on generating income as regularly as possible, can translate into benefits for investors," Daniel Xu, a Dubai-based lawyer, tells ConstructionWeekOnline.
"REITs typically own multi-property portfolios with diversified tenant pools.
"The portfolio may also include different asset classes, such as commercial, malls, hotels, hospitals, warehousing, and logistics."
From an individual investor's point of view, Xu explains, REITs reduce the risk of "relying on a single property and tenant".
"The risk profile moves from being an isolated risk to one that is hedged and diluted."
A REIT investor "enjoys the scale of capital to acquire interests in much larger opportunities than would be available through their personal capital alone", Xu says.
He adds: "For example, an individual investor may not be able to afford a direct investment into a large commercial asset.
"However, by investing in a REIT, the investor gets to invest in these large assets in bite-sized chunks."
REIT investments offer greater liquidity over direct interest and ownership in the property, Xu says.
"The investor is able to cash out much [more easily] and convert assets into cash," he continues.
"Practically, it is also much easier to buy and sell a REIT than transact a property."
REITs could, theoretically, act as "a source of private capital to developers", according to Xu.
"It would not be difficult to see developer-REIT joint ventures (JV) in the future, since a JV structure is an effective way for REITs to gain early access to deals at a lower price point," he explains.
"Apart from the traditional sources of financing such as financial institutions and private equity, REITs could also become an alternative source of funds available to developers, especially in times when liquidity and traditional lending environments are tightened."
In traditional project team arrangements, contractors would typically focus on cash flow, and as such, REITs – with their income-generation benefits – would not bring significant changes to the way contractors operate in the near future.
"However, one way in which a developer may incentivise contractors is to offer [them] an interest or some level of participation in the intended REIT," Sadique M, group general counsel at Five Global Holdings, says.
"This encourages discipline in project completion date and avoid costs overruns to the developers."