In this guide, we will teach you how to invest in UAE REITs.
REITs are investment products that allow investing in the real estate market without a direct purchase of a property. REITs are great investments because they offer diversification, high liquidity, steady income, and tax benefits.
In this guide, we will take you step by step through the process of how to invest in UAE REITs.
What is a REIT?
REIT stands for Real Estate Investment Trust. It is a company that owns, operates, or finances commercial or residential real estate.
REITs invest in different types of real estate including apartments, shopping malls, hotels, and self-storage facilities. Most REITs focus on a single type of real estate, while others cover multiple property types.
Investing in REITs is a way to add real estate to your investment portfolio without having to manage the actual properties. This diversifies your portfolio and yields high returns in the form of dividends.
How to Invest in UAE REITs?
The most common way to invest in REITs in UAE is through online brokers with access to the Nasdaq Dubai Exchange. Online brokers that offer the best conditions to invest in REITs in UAE are Interactive Brokers, Saxo Bank, and Fidelity.
UAE citizens can also invest in UAE REITs through a local brokerage firm registered with the DFM or a UAE local bank.
Using a local UAE broker or bank generates slightly higher processing time and fees compared to using an online broker.
3 Steps to Invest in REITs in UAE
Below are 3 steps to invest in UAE REITs:
Step 1. Decide How Much You Can Invest
Before investing in REITs make sure you know how much money you want to invest. It is important to consider lower liquidity of this investment products before making an investment decision.
Step 2. Selecting the Right REITs to Invest in
Check the track record and performance of REITs to find out whether they are solid investment options. It is also crucial to check how diversified the REIT is and consider current market conditions.
Step 3. Open a Brokerage Account
You can invest in UAE REITs through:
- online brokers
- UAE local brokerage firms registered with the DFM
- UAE local bank.
Which Are The Most Popular UAE REITs?
The Emirates REIT and the ENBD REIT are the largest Sharia-compliant REITs in the UAE and are listed on Nasdaq Dubai Exchange.
Emirates REIT – founded in 2010, it has a license from the DIFC and the DFSA. It manages 734 million US dollars is real estate assets. Their portfolio consists of high-end commercial and education assets, which provide safe, stable, and steady returns.
ENBD REIT – a Sharia-compliant real estate investment trust that generates income by investing in UAE real estate. The trust mostly focuses on office, residential, and alternative asset classes. ENBD REIT has a total of 11 properties and a total property portfolio value of 363 million US dollars. Its shares are traded on the NASDAQ Dubai.
The other two common REITs are Abu Dhabi REIT and Masdar Green REIT.
What Are The Different Types of REITs?
The different types of REITs are equity REITs, mortgage REITs, publicly-traded REITs, and privately-traded REITs.
Equity REITs act as a landlord owning, developing, and operating rental income generated by real estates like shopping malls and office buildings. Equity REITs lease space and collect rental income from the real estate. The profits are paid to shareholders in the form of dividends.
Equity REITs offer generous dividends to investors compared to other investments. They also offer protection against inflation as the rental agreements are adjusted accordingly. Examples of UAE equity REITs are Dubai-based ENBD REIT and Emirates REIT, which is the largest Sharia-compliant REIT worldwide.
Mortgage REITs provide the financing of real estate by purchasing debt securities (mortgages and mortgage-backed securities). They generate income from the interest on these investments. Mortgage REITs operate like banks and generate profits on the spreads between sourcing and lending money. Because of this, their profitability is very sensitive to interest rate changes. Al Mal Capital Reit is the most prominent UAE mortgage REIT.
In the UAE equity REITs have outperformed mortgage REITs for many years.
Publicly-traded REITs ç
Publicly traded REITs are the most common REITs that work like stocks traded on stock exchanges. You can buy and sell publicly-traded REITs via online brokers.
Privately-traded REITs aren’t listed on stock exchanges and have less liquid. Another disadvantage of privately-traded REITS is that they lack growth prospects because of not having access to the public capital markets. For this reason, these REITs have underperformed publicly-traded ones.
What Are The Pros and Cons of Investing in REITs?
The main advantages of investing in REITs are:
Exposure to Real Estate
REIT investments allow portfolio exposure to the real estate market without having to buy actual properties. They allows access to investing in real estates for retail traders and in smaller amounts.
UAE REITs are required to pay out at least 80% of their taxable income to shareholders. This allows investors to earn high dividends by investing in REITs.
REITs aren’t tied to stocks or other asset classes which makes them a good hedge against market turmoil. Apart from being a good hedge, REITs deliver good returns. Over the last 20 years, they outperformed the S&P 500 and other large index funds.
The main disadvantages of investing in REITs are:
REITs have lessliquidity compared to other asset classes. There is no secondary market for these investments, meaning that it can be hard to sell shares in REITs.
REITs bought with leverage have high risk potential. Added to the cost of borrowing, investors will be subject to interest payments and other fees.
The prices of REITs fluctuate like other assets, meaning that investors may receive less than what they paid for when they sell their shares in REITs.
When Does a Real Estate Company Qualify as a REIT in the UAE?
A real estate company qualifies as UAE REIT when it:
- Invests at least 75% of its total assets in real estate.
- Invests no more than 30% of its total assets in property under management.
- Generates at least 75% of its gross income from property rentals, mortgage interests, the financing of real estate, or real estate sales.
- Pays at least 80% of its taxable income to shareholders as yearly dividends.
- Is a taxable corporate entity.
- Hasn’t borrowed more than 70% of the net asset value of the fund.
- Is managed by a board of directors or trustees.
- Has a minimum of 100 shareholders.
- Hasn’t issued over 50% of its shares to five or fewer individuals.
Most REITs are listed on stock exchanges. Because of this, Investors can easily buy shares in real estate portfolios without having to purchase, manage, or finance properties themselves.
Investing in REITs in the UAE is a great way of portfolio diversification, protection against inflation and exposure to real estate markets.
UAE residents can invest in REITs through an online broker, UAE local broker or UAE local bank.
REITs pay out high dividends and have outperformed traditional investments like index funds for many years. Investing in REITs is
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