REITs — The Different Way of Investing in the Dubai Real Estate Market

If you only have a hammer, you tend to see every problem as a nail
— Abraham Maslow

Real Estate Investment Trusts or REITs are on the rise in Dubai and it is time you seriously considered investing in them.

The first step when it comes to investing is to clearly define your objectives. In other words: Why are you investing in the Dubai Real Estate Market ?

In our case, I would want you to ask a slightly different version of the same question:
Why would you not invest in the Dubai Real Estate Market ?

If any of the below answers resonates with the answer you have in mind then it is time you start looking into REITs

• Because I don’t want to tie up a significant amount of my wealth in a single real estate property
• Because I am too busy to take the time to find and analyze the right real estate investment. I also don’t want to go down the hassle of managing a property and selling it, even if it were via a third party.
• Because if I invest in a real estate property, I won’t be able to quickly exit from my investment i.e. Real estate is a non-liquid asset and I will have to spend a lot of effort and time to sell my property.
• Because I’d rather invest in stocks. Since I can, for the same amount of money, easily set up a diversified portfolio and significantly lower my risk.
• Because I simply don’t have the money to invest in real estate, even though I really want to.

What is a REIT

A Real Estate Investment Trust (REIT) is a trust company that accumulates a pool of money through an initial public offering (lPO) which is then used to buy, develop, manage and sell assets in real estate.

The IPO is identical to any other security offering with many of the same rules regarding disclosure and reporting requirements and regulations. The investor, instead of purchasing stock in a single company, is buying a unit which is actually a portion of a managed pool of real estate.

This pool of real estate then generates income through renting, leasing, selling and financing of property and distributes it directly to the REIT holder on a regular basis.

Units held in a REIT can be bought like a stock on a stock exchange. The REIT invests in real estate directly either by buying, selling or leasing properties or by investing in property mortgages.

Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in REITs that are listed on the stock exchange. Among other things, REITs invest in shopping malls, office buildings, residential properties, warehouses and hotels.

Investing in REITs is a liquid, dividend-paying means of participating in the real estate market. REITs allow the average investor the ability to invest in real estate without investing large amounts of capital or devoting a lot of time in directly managing a property portfolio.

What are the current available REITS in Dubai ?

The REIT market in the UAE is still much smaller than other more mature markets like in Singapore, Europe or the US.

There are two main REITs currently in the UAE:

• Emirates REIT — The largest Sharia’a Compliant REIT in the World, launched back in 2010 managed by Equitativa. It is available on Nasdaq-Dubai under the ticker REIT
• ENBD REIT — launched back in March of 2017 by Emirates NDB Asset Management. It is sharia’a compliant REIT publicly traded on Nasdaq-Dubai under the ticker ENBDREIT.

The third and newest addition will most likely be the ADFG REIT which is planned to be launched by the end of this year (2017). The Abu Dhabi Financial Group (ADFG) is an alternative investment company with US $5 billion in assets.

Emirates vs ENBD REIT

Here is a closer look at the portfolio structure of both REITs. You will notice that the Emirates REIT portfolio has no residential properties, while the ENBD REIT has no educational or retail properties.

This means if you think the residential market will witness growth then investing in the ENBD REIT will be more logical. Same goes for any other asset type. Remember: every market segment has its own dynamics, so carefully go through the portfolio of properties behind each REIT before you jump to invest.

Below is a breakdown of both portfolios, according to each REITs current webpage

Updated as of June 2016 — https://www.reit.ae/page/portfolio

Updated as of 31st of March 2017-http://www.enbdreit.com/reit/portfolio/

Evaluating Performance

The Emirates REIT share price has declined from its high of a 1.5 US dollars a share in 2014 to a mere 1 dollar a share today (end of 2017Q2). The ENBD REIT has also declined in value from 1.11 dollars a share in March of 2017 to around 1 dollar a share today (end of 2017Q2).

On the plus side however these REITs have consistently provided investors with great dividends of more than 8%.

In case the real estate market is going to recover, it might be a great time to jump in and invest in these REITs for the long-run since not only will you be guaranteed great dividend returns but also you are more likely to make money from share price appreciation.

Recommendations

Dubai — and the wider UAE property market — is well placed to reap the benefits of REITs. Dubai’s real estate sector could be on the brink of a significant shift, partly driven by demand for Reits. I think with the proper government support and the introduction of a robust regulatory framework, the REITs market in the UAE will greatly flourish.

The REITs market of Dubai still has a long way to go to reach the maturity stage of the REITs market in mature markets. Singapore REITs, for instance, even allow investors to own international property, further diversifying investment portfolios and reducing market contagion risks.

As a final note, there is another type of REITs which I did not speak about but has also recently become familiar in the Dubai Market which is the concept of private non-traded REITs. Private non-traded REITs are more commonly known these days as Real Estate Crowdfunding. As great as the hype might be around crowdfunding, you will need to be wary of the setbacks that come along when investing in private non-traded REITs.