Investor awareness, improved regulatory environment necessary for GCC REITs to flourish: Survey

Investor sentiment and lack of understanding, along with a weak regulatory environment, are the biggest challenges for the growth of REITs (real estate investment trusts) in the Middle East, according to the latest survey by CFA Society Emirates, which gauged the opinions of the society’s members and charterholders in the UAE.

The survey revealed that the majority of CFA Society Emirates’ members ranked expected returns from a REIT portfolio higher than cash equivalents and bonds, and said that they intend to invest in REITs.

However, they believe that the returns from REITs would be lower than stocks, private equity and real estate.

Amer Abdul Aziz Khansaheb, CFA, President of CFA Society Emirates, commented on the findings, saying, "Over the past decade, the GCC has seen a surge of activity in the region’s relatively youthful REIT market. Recent developments, such as the oversubscription of ENBD REIT and Johor Corp’s Al-Salam REIT, suggest that there is a rising demand amongst investors for this particular asset class.

He added, "With the UAE’s real estate market having the highest demand in the GCC amongst regional and international investors, a less volatile asset class, such as REITs, is expected to become more attractive, as investors seek to reduce portfolio risk given the current macroeconomic environment."

However, the survey shows that it is important for investment professionals to increase investor understanding about REITs and gain their trust through prudent and ethical investment strategies which put investor interests first, he said.

The key findings of the survey show that investor understanding of REITs was seen as the biggest challenge for its growth and development in the region.

Sixty-two per cent of respondents are convinced returns from a REIT portfolio will be lower than stocks, while 82 per cent feel that REITs will deliver lower returns than private equity. Forty-six per cent are of the opinion that real estate would deliver higher returns than REITs.

A large majority of respondents said that the expected returns from a REIT portfolio would be higher compared to cash equivalents (83 per cent) and bonds (73 per cent).

Seventy-six per cent of members see institutional investors investing in REITS, compared to 23 per cent who felt that it would be retail investors.

62 per cent of respondents said that they intend to invest in REITS.

Forty-five per cent of members believe that GCC’s real estate market is mature enough for REITS to flourish, while 43 per cent believe that it is not.