Here’s what analysts are saying about Saudi’s new REITs regulations

New regulations for Real Estate Investment Traded Funds (REITs) in Saudi Arabia are set to enhance transparency and disclosures in the sector. The amendments will also protect investor interests, boost sentiment and confidence, and stimulate the offering of better products going forward.

Argaam has discussed the new regulations with analysts and financial advisers in the Kingdom.

Here’s what they had to say:

1) Hassan Al-Shuaiby, manager of investment products issuance at the Capital Market Authority (CMA), said the new amendments have come into effect since being adopted by the market regulator. However, some rules, which oblige fund managers to set risk policies, annual risk assessments and quarterly fact sheets, will be effective in early 2019.

​2) Wisam Alfreihi, director of investment banking at Saudi Fransi Capital, said the previous rules of REITs lacked a lot of important standards. The market regulator had initially approved flexible rules to attract investors to the sector upon launch of REITs on Saudi Stock Exchange (Tadawul). Under the new regulations, the minimum fund size was raised to SAR 500 million from SAR 100 million, to reduce potential risks on fund assets.

“Meanwhile, potential risks from exposure to one tenant were also addressed. Currently, yields from one tenant should not exceed 25 percent of total yields,” Alfreihi added.

Fund managers are also directed to disclose fact sheets on quarterly basis, including unit prices and the expected leasing income. In addition, a biannual asset evaluation is also required amid potential increases or declines in market values.

3) Financial adviser Ali Alzahrani said the recent amendments have regulated the aspects needed to encourage investment in these funds, making REITs a more attractive option. They also enhance governance rules with regard to disclosing the major unitholders’ ownership.

“Raising the minimum capital of REIT funds to SAR 500 million aims to ease traders’ control over unit ownership, hindering unfair monopoly,” Alzahrani added.

4) REITs are distinguished by low investment costs, easy entry and immediate exits when compared to conventional funds, said Musab Saedan, vice-president of marketing and research at Salman Abdullah Bin Saedan Group for Real Estate Development. REITs also represent safe investment options, being under the direct supervision of the CMA and Tadawul. They are also backed by the other strict obligations imposed on fund managers.

The new amendments approved by the market regulator will improve investor sentiment about REITs and stimulate the offering of better products.

“I am looking to see residential, commercial and industrial REITs with better yields in the market going forward, to enhance market diversification and mitigate risks in the sector,” Saedan added.