ADX set to launch first property trust by year's end

The Abu Dhabi Securities Exchange (ADX) hopes to launch the region's first publicly traded real estate investment trust (REIT) by the end of this year, pending regulatory approval. A REIT, which trades as a single security like a stock, is an investment fund that owns a portfolio of properties or mortgages and distributes the rental income or mortgage payments back to investors through dividends.

The Emirates Securities and Commodities Authority (ESCA) already has the framework to regulate equities, mutual funds and bonds but a REIT would be a new venture for the regulator. REITs have been popular investment vehicles in many developed markets for years because they allow shareholders to invest in property without having to allocate huge chunks of capital. "This is more for investors who don't want to go long but still want to benefit from the overall growth in the real estate sector. The growth of REITs has been proven as a good story to tell," said Elie Ghanem, the head of market and product development at the ADX. "We aim to see if ESCA has the power to regulate REITs."

ESCA officials could not be reached for comment yesterday. Simon O'Brien, the head of listing authority at NASDAQ Dubai, said REITs were attracting interest here. "We believe REITs could become popular investments in the GCC and we are in touch with a number of potential issuers. We are working to provide an attractive listing and trading environment." The exchange expects to target retail investors, which account for 80 per cent of the overall investment on the ADX, but also hopes to entice foreign investors who want exposure to the UAE property market.

Mr Ghanem said the exchange would provide the infrastructure and technical framework to list a REIT and would consult ESCA beginning next month to make sure the proper regulatory measures were in place. However, because a REIT's attraction for investors is steady cash flow, it remains to be seen whether there would be sufficient investor appetite at the moment for a REIT composed of UAE property. "REITs require somewhat more mature and less volatile property markets as compared to what we have in the UAE today," said Saud Masud, a property analyst with UBS.

"With property prices and rents dropping 50 per cent in the UAE on average, the REIT may be aggressively priced [in order to attract investors], which may not be a preference for the management." The addition of a REIT would be another step in the exchange's stated goal to increase the number of investment options it offers. Two months ago the ADX launched the first exchange-traded fund (ETF) within the GCC. The OneShare Dow Jones UAE25, which was created by National Bank of Abu Dhabi (NBAD), tracks the 25 largest Abu Dhabi and Dubai listed stocks.