REITs in the UAE: Complete Guide to Real Estate Investment Trusts

Real Estate Investment Trusts (REITs) have recently emerged as a main component of the United Arab Emirates' real estate and finance industries; especially amid the country’s highly prolific and booming real estate industry. These trusts provide a structured framework for investors to capitalize on real estate opportunities; while shielding them from the complexities that come with direct property ownership. Understanding the nuances of various types of REITs is indeed critical for both experienced and new investors. Our blog below constitutes your Dubai REIT guide, delving deeper into REITs, their structure, types, risks, and benefits.

What Are REITs and How Do They Work in the UAE?

A Real Estate Investment Trust (REIT) is structured very similarly to mutual funds. These trusts own, run, or finance income-generating real estate across many sectors. REITs aggregate capital from several investors who get returns in the form of dividends, without the burden of purchasing, managing, or financing real estate assets themselves.

Structure of REITs in the UAE

Usually, REITs in the UAE are set up as closed-ended investment funds. Structured as such, these funds ensure openness, investor protection, and compliance with global norms.

Legal Framework and Regulatory Bodies (DFSA, SCA)

The regulatory landscape for REITs in the UAE is robust, with two primary bodies overseeing their operations. They are either established offshore in financial free zones such as the Dubai International Financial Centre (DIFC) and governed by the Dubai Financial Services Authority (DFSA), or onshore and overseen by the Securities and Commodities Authority (SCA).

Both bodies mandate that REITs distribute a significant portion of their income as dividends, maintain a diversified portfolio, and undergo regular audits.

Types of REITs Available in the UAE

Equity REITs

Equity REITs invest in income-generating real estate properties. Their revenues derive from leasing these properties and collecting rents. In the UAE, these REITs often focus on sectors like commercial, residential, and retail properties.

Mortgage REITs

Mortgage REITs, also known as mREITs, are structured to finance income-producing real estate. This is mainly done by purchasing or originating mortgages and mortgage-backed securities. Revenue is generated by the interest earned on these financial assets. Such REITs offer a great approach towards diversification for investors into the real estate credit market. They are not very common in the UAE.

Hybrid REITs

Combining equity REITs and mortgage REITs; hybrid REITs own properties and hold mortgages. They provide investors with a diversified income stream generated by rental yields and interest payments.

Public vs Private REITs

• Public REITs: Public REITs are listed on stock exchanges such as NASDAQ Dubai. They are available to a wider range of investors and offer liquidity and transparency.
• Private REITs: Unlike public REITs, these are not traded on public exchanges yet only available to institutional investors or high-net-worth individuals. They are characterized with higher returns, increased risk and lower liquidity.

Top REITs Operating in the UAE

Emirates REIT

Listed on NASDAQ Dubai, Emirates REIT was established in 2010 as the first Sharia-compliant REIT in the UAE. It consists of a diversified portfolio of commercial, educational, and retail properties across Dubai, with a focus on assets that offer long-term rental income and capital appreciation.

ENBD REIT

ENBD REIT is a public trust, listed on NASDAQ Dubai and managed by Emirates NBD Asset Management. It invests in a diversified portfolio of income-generating real estate assets, including office, residential, and alternative sectors.

Al Mal Capital REIT

Al Mal Capital REIT is also a Sharia-compliant REIT listed on the Dubai Financial Market (DFM) and managed by Al Mal Capital PSC. It focuses on investing in a diversified portfolio of income-generating real estate assets across the UAE.

Benefits of Investing in REITs in the UAE

Real estate Investment Trusts provide numerous benefits to investors, here are the REIT investment benefits in the UAE:

• Regular Income: REITs are mandated to distribute a significant portion of their income as dividends to investors.
• Diversification: Investing in REITs exposes you to a diversified portfolio of real estate assets, mitigating the risks of concentration.
• Liquidity: Unlike direct real estate investments, publicly listed REITs are bought and sold on stock exchanges.
• Professional Management: Financial experts manage REITs and handle property acquisition, management, and leasing.
• Accessibility: Investment tickets in REITs are lower, allowing a wider demographic to invest with small capital.

Risks Associated with REIT Investment

Risk is inherent to all investments and REITs are no different. Here are a few risks that are associated with a Real Estate Investment Trust in the UAE.

• Market Volatility: REIT share prices fluctuate based on real estate market conditions and broader economic conditions.
• Interest Rate Fluctuations: When interest rates increase, REITs' borrowing costs and dividend yields are impacted.
• Liquidity Risks: While publicly traded REITs offer liquidity, private REITs may have restrictions on share redemption, limiting investors' ability to exit.
• Regulatory Changes: Tax laws, zoning regulations, or property laws impact how REITs are managed.

How to Invest in REITs in the UAE

• You can buy shares in public REITs through stock exchanges such as DFM, NASDAQ Dubai via licensed brokerage firms.
• Some financial institutions offer platforms dedicated to REIT investments. They also provide research and trading tools.
• Many banks and brokerage channels in the UAE provide access to REIT investments, as well as advisory services.

REITs vs Traditional Property Investment

The table below highlights the main difference between REITs vs property investments:

Taxation and Regulations for REITs in the UAE

• Corporate Tax Implications: Many wonder about the tax on REITs in the UAE. REITs that meet specific criteria, such as distributing a significant portion of their income to investors may benefit from the UAE’s newly introduced federal corporate tax regime. Investors are advised to consult a tax advisor to learn more.
• Zakat and Sharia Considerations: For Muslim investors, Sharia-compliant REITs like Emirates REIT and Al Mal Capital REIT offer investment opportunities aligned with the tenets of Sharia; including avoiding interest-bearing instruments and operations that comply with Islamic law.
• Foreign Ownership and Compliance: UAE non-residents are allowed to invest in REITs, especially those listed on public exchanges. However, investors should stay abreast of any specific restrictions or requirements related to foreign ownership in certain sectors or regions.

Future of REITs in the UAE Market

When looking at the UAE REITs, growth is foreseen thanks to many factors such as economic diversification, regulatory support, and increasing investor interest. The planned IPO of Dubai Holding's residential REIT, among other notable developments in REITs in the Middle East, point to a maturing market with great potential for growth for domestic and international investors alike. As the real estate sector in the UAE continues to evolve, REITs are poised to play a significant role in shaping investment strategies in the region.

Frequently Asked Questions

1. Are REITs in the UAE regulated by the government?

Yes, REITs in the UAE are regulated by government-appointed financial authorities. The two primary regulatory bodies are the Securities and Commodities Authority (SCA) which oversees and regulates onshore REITs in the UAE and the Dubai Financial Services Authority (DFSA) which regulates REITs established within the Dubai International Financial Centre (DIFC).

2. How can I start investing in REITs as a UAE resident?

As a UAE resident, you can invest in REITs through several channels:

• Stock Exchanges such as Emirates REIT (NASDAQ Dubai), ENBD REIT (NASDAQ Dubai), and Al Mal Capital REIT (Dubai Financial Market) via a licensed brokerage.
• Banks and brokers that offer access to REIT investments.
• REIT-specific platforms or portals.

3. Is REIT income in the UAE tax-free?

REIT income in the UAE is generally tax-free for individual investors. However, as the country introduced the federal corporate tax regime in 2023, REITs may be exempt from corporate tax if they distribute a minimum percentage (typically 80%) of their net income and meet specific regulatory criteria. Foreign or corporate investors may be exempt from tax based on their country of residence or registration.

4. How risky are REITs compared to other investments?

REITs are considered moderate-risk investments. They are generally less volatile than stocks; more liquid and diversified than direct real estate investments.

5. Are there Sharia-compliant REITs in the UAE?

Yes, the UAE offers Sharia-compliant REIT options designed for Islamic investors, namely Emirates REIT and Al Mal Capital REIT. These REITs comply with Islamic finance principles, avoiding interest-bearing instruments and investing in halal sectors.