Saudi property sector likely to show robust performance: MEFIC Capital

Saudi Arabia’s real estate sector is expected to show robust performance, driven by local economic growth and infrastructure projects, Ibrahim Alhedaithy, Managing Director of Riyadh-based MEFIC Capital, told Argaam in an exclusive on Wednesday.

“We’ve no concerns for the Saudi real estate sector in the medium or long term,” he said.

REITs will contribute to changing the culture of real estate investment, which helps stabilize the sector across the board.

As investors showed strong turnout in MEFIC REIT, the fund extended the offering period upon investor request to enable them to benefit from the various opportunities offered by the fund.

Here’s the full interview with Alhedaithy:

Q: MEFIC Capital had earlier invested in real estate funds. How can you evaluate the local real estate industry in terms of prices and leasing yields until 2020?

A: “We’ve no concerns for the Saudi real estate sector in the medium or long term.” The property market is expected to show robust performance, driven by local economic growth that is supported by the Kingdom’s transformation plan. Several infrastructure projects will also link cities, train networks and airports. The move will help diversify demand for real estate products and build new properties for these projects, to drive positive growth in the sector.

In addition, REIT funds will also change the real estate investment culture to qualitative management through financial firms, a step that will help stabilize the commercial, residential and hotel segments in the sector.

The Kingdom’s plans for attracting foreign investments in the coming period, along with developing an incentive program for the sector will both support the industry in the near term.

Q: MEFIC REIT will ensure a minimum return of 5 percent. What is the target benefit from the fund manager’s commitment to pay at its own expense a maximum of 2 percent to unit holders, so as to boost the return to 5 percent over eight years?

A: We ensured a minimum return for subscribers after a thorough study. We aim to assert the real benefit from investment in REITs, as a suitable option for conservative investors who are looking for low-risk and fixed-yield options.

Meanwhile, this privilege will help maintain a positive stock price following the IPO, as it reduces potential risks of early exits from the fund during the first eight years.

Q: What are MEFIC REIT’s expansion plans in terms of asset diversification across certain sectors and cities? What is the expected financing for target expansions?

A: The fund aims to maintain asset diversification in terms of sectors and geographical location, so as to reduce investment risks. Attractive investment opportunities will be discussed in the short term, to boost yields of unit holders.

Based on the fund’s regulations, financing could be secured at 50 percent maximum of the fund’s total size.

Q: MEFIC REIT is planning to acquire a stake in a Dubai-based property, which accounts for 6 percent of the fund’s assets. Are you eying any acquisitions outside the Kingdom?

A: Potential acquisitions depend on available opportunities. The fund’s overseas investments shall not exceed 25 percent of its total size.

Q: How was investor turnout to the IPO?

A: Investors showed strong turnout for the offering, as MEFIC Capital is the first and only fund in the Kingdom that offers a minimum return for subscribers in compliance with Sharia. It is also one of the most-diversified REITs in terms of geographical location and sector diversification. Meanwhile, the fund’s target net return stands at 7.5 percent in the first year – a very attractive level when compared to peers.

Q: Why did MEFIC REIT extend the offering period until May 15?

A: The company received many requests from investors to extend the offering period, so as to tap this attractive opportunity. This extension will also allow some retail investors, who aim to subscribe in the fund, to review its benefits, compared to other investment options.