Non-resident foreign investors ‘can trade in Saudi real estate funds’

Non-resident foreign investors ‘can trade in Saudi real estate funds’
The housing element of the NTP proposes to increase the real estate sector’s contribution to the GDP from 5 percent to 10 percent by 2020. (AN photo)
Updated 31 October 2016

Non-resident foreign investors ‘can trade in Saudi real estate funds’

Non-resident foreign investors ‘can trade in Saudi real estate funds’

JEDDAH: Non-resident foreign investors can trade in the units of the Real Estate Investment Traded Funds in the Saudi Stock Exchange (Tadawul), the Capital Market Authority (CMA) confirmed Sunday.

The funds, publicly offered and traded on the Saudi stock exchange, would invest in residential, commercial, industrial and agricultural real estate, periodically distributing part of their income to holders of the fund.
The authority’s board Sunday approved the final version of the rules for Real Estate Investment Traded Funds.
The draft was published on the CMA’s website in the period between July 31 and Aug. 23.
The final draft consists of 11 parts and the CMA statement said it took into consideration the comments and observations it received from the investors and concerned and interested parties during the public consultation period.
In addition, the international best practices and standards have been taken into consideration when preparing the rules.
Commenting on the CMA’s announcement, Sami A. Al-Nwaisir, chairman of Al-Sami Holding Group, told Arab News: “The issue of finance and investment is one of the major challenges facing developers to supply new units for meeting the existing deficit and demand in the market.”
 Al-Nwaisir said: “This CMA initiative, I am confident, was taken in close coordination with the Ministry of Housing, the Saudi Arabian Monetary Agency (SAMA) and organizations in order to tackle the need for finance whether through equity as is the case with CMA, through banking channels or through government guarantee.”
According to to CMA, the new instructions will be effective and enter into force starting from Oct. 30.
This step comes as a part of the CMA’s role in regulating and developing the capital market as well as introducing new investment legislations to help providing new financial instruments and diversifying investment opportunities.
These moves are in line with the National Transformation Program and Saudi Vision 2030.
The CMA considers the asset management industry as one of the key securities business activities. It contributes to providing diversified investment products, offers professional management to client assets and boosts professional practices and institutional conduct in the market.
In line with the Authority’s 2015-2019 strategy, the CMA will conduct a number of initiatives to support the growth of this industry.
This involves providing new investment channels supporting all investor categories, updating the related implementing regulations, increasing the level of client asset protection, supporting the occupational qualification for professionals working in the asset management field and raising investor awareness.
A Real Estate Investment Traded Fund (REIT), as mentioned in the instructions, is a real estate investment fund that is publicly offered and the units of which are traded on the exchange. REIT’s primary investment objective is to invest in ‘constructionally developed’ real estates that generate periodic income. This includes residential, commercial, industrial, agricultural and other types of real estates.
The fund must distribute a prescriptive percentage of the fund’s net profit in cash to the unit holders at least annually.
The fund manager must appoint a real estate company or more than one company specialized in managing properties (Property management company) — after ensuring that the required approvals and licenses are obtained from relevant governmental agencies – to manage the property held for investment
The company should possess the necessary experience in real estate management, and should be responsible for carrying out property management activities including, but not limited to, property management, property maintenance, leasing services and rent collection.
The fund manager may agree with the lessee — under a leasing contract — that the lessee will manage and maintain the property during the leasing contract period.
Al-Nwaisir further commented: “The Kingdom is continuing with its efforts to solve the need for housing units at a time when the occupancy rate for rented houses remains very high, around 60 percent.”
He added: “The Saudi real estate sector constitutes more than 38 percent of GNP and has more than 100 areas that emerge from it such as engineering, construction, marketing, finance and landscape. At the same time, Saudi Arabia needs middle income housing units. The current deficit in the middle income group housing is more than 1.5 million, which is estimated to reach 4.5 million units within a decade.”