The REIT time for funds?


The success of REITs in the Saudi market has been remarkable. Since the legislation was issued just 12 months ago, there have been six listings and I wonder if this is contributing to a greater appetite for Islamic funds generally.

The Saudi REITs to date have a combined market value of around SAR3.36 billion (US$894.95 million), representing a 10% rise in value since their individual listings, and are being actively traded, which is clearly what you need to avoid zombie listings that quickly fall out of favor with everyone concerned. Combined with a further 30 listings being prepared in the wings, this is a clear success story.

While this is great for its own sake, including a liberation of real estate investment for many more people than was previously possible, coincidentally or not it has come at a time when more people are talking about Islamic funds, whether listed or not.

It’s been a decade since funds fell out of favor with the credit crunch leading many investors to want more control over their real estate investments, preferring to select individual transactions for themselves or participating as part of a small club of investors. However, this can often make it hard to get diversification or for large institutional investors to deploy the volume of capital they wish.

Meanwhile, as the cost of financing starts to rise, there can be savings by offering a pool of assets as collateral rather than stand-alone properties, further contributing to the attractiveness of funds.

Investor confidence will always vary, but I’m seeing appetite both for sector and geographic-specific funds where the seed assets have been identified, as well as much larger globally diversified initiatives where far greater trust is being placed with the fund manager, thanks in part to their co-investment.

This is all very encouraging for the Islamic finance world, and while some investors will always prefer their own assets, the success of REITs and the apparent appetite for funds would be a welcome return to the availability of choice for those seeing the attractions of bricks and mortar.

Original article appeared in Islamic Finance News.