(MENAFN- Gulf Times) Islamic Real Estate Investment Trusts (REITs) are continuously gaining traction as can be seen by a number of new issuances in the recent past. Readers of this special focus page might remember that we forecast two years ago that the demand for this kind of investment vehicle is high and the formation of REITs in and outside their main playing ground Malaysia will likely pick up momentum.
And it did. At the end of last year, Emirates REIT, which was launched in Dubai in 2011 as the first of its kind in the UAE and listed at Nasdaq Dubai in April 2014, last November officially became the world's largest Islamic REIT. The trust reported total assets of $773mn and a market capitalisation of $333mn by which it overtook now second-ranked Singapore-based Sabana Shariah-Compliant Industrial REIT.
Meanwhile, Emirates REIT has been expanding by building up a portfolio in Abu Dhabi, and its managing firm, Equitativa, in February 2017 launched a new private REIT called The Residential REIT, a trust that comprises about 500 homes in Dubai and Ras Al Khaimah, including Motor City and Al Hamra Village and is the first REIT focused on residential property only in the UAE.
Equitavia also set up The Logistics REIT and The Hospitality Property Fund, two other specialised REITs.
And it doesn't stop here. Emirates NBD, Dubai's largest bank, listed its own Islamic REIT called ENBD REIT on the Nasdaq Dubai exchange on March 23, 2017, raising about $100mn from the offering to fund acquisitions of new property. It was the first initial public offering in Dubai since end-2014.
In a next step, Abu Dhabi Financial Group, an alternative investment company with assets under management of around $5bn, is preparing to float an Islamic REIT it calls Etihad REIT by the end of this year, comprising ten income-producing properties across four emirates and in a variety of real estate subsectors including residential, retail, warehousing and staff accommodation at a total worth close to $820mn. It would be the sixth REIT in the UAE.
Adding to that, Arcapita Investment Management, a Bahrain-based Islamic investment firm, recently acquired a portfolio of logistics assets in Dubai for about $150mn adding to its existing logistics stock in the emirate and said that it could bundle all together into a another new logistics REIT to be listed at one of the regional exchanges.
The UAE is clearly playing a pioneering role in the establishments of REITs for the entire Gulf Cooperation Council (GCC) region. While the first REIT in the GCC was actually launched in Kuwait in 2007 as Al Mahrab Tower REIT, it remained a closed and non-listed REIT invested in residential and hotel properties in Makkah.
In Bahrain, the private Inovest REIT was launched in 2009, followed by the Al Salam Asia REIT in 2014, but the first public REIT in Bahrain, Eskan Bank REIT, was only listed in January 2017.
In Saudi Arabia, the first REIT laws were introduced last October, which triggered the listing of two new REITs, Riyadh REIT and Al Jazira Mawten REIT. Another one, the Jadwa REIT Alharamain Fund, just saw its IPO this April.
Qatar is the next country that could see an upswing in REITs. While the first (private) REIT, Regency REIT, was established already back in 2009, a clear regulation for REIT listings only followed in 2016. It says that a company may act as a REIT after obtaining approval of the Qatar Financial Markets Authority, which means is has to be listed already as an investment firm.
While this is a positive development, the total number of (listed) Islamic REITs available globally is still low in relation to demand from Muslim investors, including takaful companies which traditionally show a great interest in REIT investments. This means that despite high returns of between 6% and 8% annually, investors might shy away owing to the low liquidity of Islamic REITs as compared to the conventional REIT market.
Apart from the above mentioned real estate trusts, including Singapore's only Islamic REIT Sabana, there are only four out of 17 REITs in Malaysia Shariah-compliant, namely Al Aqar Healthcare REIT, KLCC REIT, Axis REIT and the latest one, Al Salam REIT, which was listed at the end of 2015. Another, Al Hadharah Boustead REIT which was invested in palm oil plantations, was delisted in 2014.
Interestingly, Indonesia, the world's largest Muslim economy as per nominal GDP, does not have specific regulations for Islamic REITS, let alone clear REIT rules yet but rather a framework for property investment funds. This has not encouraged the launch of domestic REITs in the past, although some exiled REIT companies have property holdings in the country, namely Singapore-listed (non-Islamic) REITs Lippo Malls Indonesia Retail Trust and First Real Estate Investment Trust. But with the government now offering incentives and working on stronger regulations for REITs, Lippo Group is shifting back some of its trusts and plans to establish first home-grown REITs, possibly also Islamic REITs.
'Because of the government policy, we think that Indonesia has very good potential for REITs, Lippo Group CEO James Riady said.
Indonesia' s Financial Services Authority is considering providing a framework for Islamic REITs possibly as early as this year, which could open the avenues for this asset type in the country for both domestic and Middle East investors.
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