Private funds may be allowed to turn Reit

The Dubai Financial Services Authority (DFSA) may waive its certain rules to allow private property funds, operating within the Dubai International Financial Centre (DIFC), to convert into real estate investment trusts (Reits), according to a top authority official. "We have had a number of debates with firms and legal representatives who are thinking of starting as private property funds and then metamorphosing into a Reit. But to achieve that we will have to consider certain waivers from our rules, which we might then consider," Simon Gray, Director Supervision, DFSA, told Emirates Business . Although the rules relating to Reits are distinct from rules relating to other property funds, where there is a compelling case or a rule to be waived or modified, the DFSA has an established process involving its rules and waivers committee, which meets monthly or on an ad-hoc basis. The committee's main objective is to consider and determine all applications to waive or modify provisions of the rulebook or the Markets Law. Although there have no Reits yet been listed on Nasdaq Dubai, Gray believes it is just a matter of time when the first Reit will list in Dubai and others will follow. The DFSA has already adopted a flexible regime to accommodate both conventional and Islamic Reits, and has opened doors for retail investors as well. The authority further allows setting up of infrastructure Reits besides the equity and mortgage ones. "Islamic Reits have done well in Malaysia and we see a tremendous potential for those here," Gray added. Excerpts from the interview: Have any UAE or GCC-based firms approached you for listing of Reits – conventional or Islamic? We were very close to progressing a number of enquiries from DFSA authorised firms and we continue to have interest, but the property correction has dampened expectations to some extent. For a firm to establish a Reit within the DIFC, it would need to be regulated by the DFSA with a category three licence to carry out fund operation activities. The actual listing would be a matter for Nasdaq Dubai, which we regulate as an authorised market institution. We continue to get enquiries – primarily for law firms representing their own clients. Do you see Reits augmenting well for development or investment companies? In spite of the significant correction in the market, I believe that it is an appropriate time to introduce Reits to the GCC market. They are a means to open up the real estate sector as an avenue for investment without the investor having to take specific property risk. It has nothing to do with where the market is in the real estate cycle in terms of prices, but has much more to do with how developed and mature the market is becoming. The DFSA's approach with the introduction of its Reits regime has been to create a commercially acceptable system of regulation which satisfies the needs of both regulator and the regulated. What benefits can international companies derive by listing Reits on Nasdaq Dubai since the region is a tax free one? Tax is not the only driver of interest in Reits – often tax is used to encourage demand via tax incentives. The growth experienced in Dubai did not need any tax incentive. That said, one hurdle that still needs to be overcome is people's perception that Reits are popular as much as tax efficient vehicles as they are good investment vehicles. For the DIFC, we see the main demand coming as a welcome source of new liquidity and greater "financial democracy" – a sign of a maturing market. Do you expect foreign direct investment coming into the region's real estate markets through Reits? That is possible, but a large part of this investment will continue to come via private property funds – though much will depend on the terms and conditions that may prevail in their own jurisdictions. It is also worth noting that a Reit is as much an investment vehicle for a retail audience as it is for institutions. Will Reits be a key driver for building a successful and sustained infrastructure for the UAE real estate sector? I certainly hope. Although this is a question perhaps best answered by an economist. However, from my personal perspective I think Reits could be a helpful driver for reasons stated earlier, though it will still take some time for buyer confidence to return to all project developments. Once the first Reit has been established and listed, I think there will be greater interest and this is likely to follow quickly. What were the factors in the DFSA establishing its Reits regime? In many of the world's major capital markets, Reits have become a favoured method for attracting public ownership in property investments. They provide a convenient forum for listed and traded property ownership with transparent pricing and abundant liquidity. Reits are not a new phenomenon, however in this region, the DIFC regime is the first of its kind. In the context, of what was until recently, a booming real estate sector within the Gul