Real Estate Investment Trusts, or REITs, have come a long way since they were first launched in 1960 as a way of giving investors the opportunity to invest in large, diversified portfolios of income-producing real estate.
The model caught on and spread rapidly around the world. As of December 2022, there were 893 listed REITs with a combined equity market capitalization of some $1.9 trillion, according to data from Reit.com. The UAE gained its first REIT in 2010 when Emirates REIT – now the UAE’s largest listed Sharia compliant REIT – was incorporated in DIFC and subsequently listed on Nasdaq Dubai in 2014. The trust now has US$734 million of commercial, retail and education real estate assets under management in its portfolio, including the prestigious Index Tower in DIFC, Index Mall, and GEMS World Academy.
With growing interest in the model spurred by the dynamism of the UAE’s real estate sector, Thierry Delvaux, CEO, Equitativa Dubai Limited, which manages Emirates REIT, offers seven advantages of REITs for investors.
- Diversification: Investing in REITs allows for diversification in a real estate portfolio without the need to directly own physical properties. REITs typically own and manage a variety of real estate assets, such as residential, commercial, or industrial properties.
- Liquidity: REITs are traded on stock exchanges, providing investors with liquidity. Unlike owning physical real estate, which may take time to sell, investors can buy or sell REIT shares on the stock market.
- Professional Management: REITs are managed by experienced professionals who handle property acquisition, management, and sales. This allows investors to benefit from the expertise of real estate professionals without having to actively manage properties themselves.
- Accessibility: Investors can access the real estate market with relatively small amounts of capital through REITs. This makes real estate investment more accessible compared to purchasing individual properties, which often requires significant upfront capital.
- Transparency: REITs are required to disclose financial information and adhere to regulatory standards, providing investors with transparency about the performance and management of the real estate assets within the trust.
- Potential for Capital Appreciation: While the primary focus is on income generation, some REITs may also experience capital appreciation if the value of their underlying properties increases over time.
- Inflation Hedge: Real estate has historically been considered a hedge against inflation. As property values and rental incomes tend to rise with inflation, investing in REITs can provide a degree of protection against the eroding effects of inflation on the purchasing power of money.
