MUSCAT : Real Estate Investment Trusts (REIT) could be the next big thing for investors in the Sultanate. Offering institutional and individual (Omani and expatriate) investors an unmatched platform to safely park their funds, access to a diverse portfolio of high worth commercial real estate assets and attractive steady income, REITs top the list of investment options including bonds and stocks.

Investment experts are of the view that Oman’s REITs could be among the most sought-after in the MENA region on account of the prevailing growth-enabling environment for its real estate sector along with longstanding political stability, friendly international relations and highly resilient economy.

With their enhanced appeal to investors, the Sultanate’s REITs could be instrumental in attracting considerable foreign direct investments to the country, industry watchers opine.

Unlike in the US and Europe, REITs are underpenetrated in the Middle East including Oman, but are expected to grow gradually as the real estate market in the region matures in terms of quality of and access to assets, financing, governance and regulations, according to a PwC report.

The Sultanate’s focus on infrastructure development as envisaged in Oman Vision 2040 and the expected high growth in its tourism, hospitality and healthcare sectors will certainly have a positive impact on its real estate sector, making REIT the best-in-class financial instrument in the country, studies suggest. 

What is REIT?

REIT is a high yield investment platform offering multiple benefits to investors. Operating as a closed ended company, REIT owns, manages or finances profitable real estate assets aimed at generating stable income for investors. REIT funds are invested in a wide range of real estate properties ranging from apartment buildings, data centers, hotels, hospitals and educational facilities to offices, retail centers and warehouses.

REITs manage a diversified portfolio of high-value real estate properties and mortgages and are traded on public markets. They lease properties and collect rents that are later distributed among shareholders as dividends.

Mortgage REITS, on the other hand, don’t own real estate directly; they generate profit from the interest they receive by financing real estate assets.

Benefits of investing in REIT

REIT funds enable participants to invest in truly diversified, high-value real estate assets and earn stable, high-yield dividend income without hassles. They also get the additional reward of capital appreciation in the long run. As REITs pool the capital of many investors, the fund is huge, and this allows individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves. Usually individuals on their own may not have the financial resources to do so. 

It may be noted that no less than 90% of the annual net profit is distributed among investors as dividends. The net profit however excludes capital gains. The best part is REIT funds are exempt from income tax. Also, most REITs are publicly traded like stocks, which makes them highly liquid (unlike physical real estate investments).

Another key feature of REIT is the diversified asset portfolio that spreads across sectors ranging from healthcare, tourism and education to malls and residential properties and across geographical areas. This ensures higher and stable returns, because the decline in the rental value of a property in a particular sector or region is more than offset by the rise in rental value of another asset in another sector or area. REITs are also strongly hedged against inflation as real estate prices tend to go up when prices do.

According to analysts, with so many new and old properties remaining vacant without any tenants, and rental values of some properties declining drastically, property owners suffer huge losses. In this context, REITs could be a game changer. Investors are fairly insulated from huge losses, as REITs are managed by expert investment professionals.

One of the risks that discourage people from real estate business is lack of liquidity (easy to sell and purchase assets at market value). REIT allows investors to exit and get their capital out just by selling their shares.

Another notable point is that REIT allows not just mega investors but small investors as well easy access to high value properties. REIT funds also play a crucial role in promoting and strengthening local and regional markets, and they attract significant foreign direct investment to the country. In this way national economy stands to benefit immensely. 

REIT: Establishment and operation

An REIT fund is established by way of contribution of assets (developed and income generating) by the founders. Institutional and individual investors are offered access to such assets through Initial Public Offering (IPO) i.e., the sale of units from the current unit holders. Thus, the public gets access to the portfolio. Post IPO, the assets are transferred to the fund and registered under custody. 

Subsequently, the fund manager identifies the best options including acquiring new assets and disposal of existing ones to enhance best returns to investors. 

REIT: better than bonds and stocks?

Unlike bonds, which pay a fixed interest and carry a set maturity date, REITs are productive assets that can grow in value indefinitely. As REITs acquire more properties, their cash flow rises leading to higher dividends and value appreciation over time.

REITs are safer than stocks as REITs’ performance is determined by the health of real estate sector alone, while stock prices are affected by multiple economic factors. 

Oman and REITs

The Sultanate provides an enabling environment that could spur the growth of its real estate sector. Oman’s National Center for Statistics & Information is working on developing a Real Estate Price Index aimed at scientific analysis and better evaluation of the real estate market. The country has strong and favourable REIT regulations that help streamline real estate investments. Also, expatriates are now allowed to buy properties such as flats and offices in Oman, adding to the appeal of REITs. 

With real estate prices in Oman down due to Covid 19 crisis, and prices expected to shoot up over time, this is probably the best time to invest in Oman-based REITs, according to fund managers.

Liked this story? We’ll send you more. Subscribe to TAS newsletter and get stories delivered to your inbox. Click to get started.