About 45 per cent of investment professionals in the region see the GCC’s real estate market as mature enough for real estate investment trusts (REITs) to flourish. However, nearly 43 per cent believe that it has not reached such a mature stage, according to a recent survey conducted by CFA Society Emirates.
 
It is an association of local investment professionals comprising portfolio managers, investment advisors, educators and other financial professionals.
 
In terms of the commercial real estate outlook for the UAE, 70 per cent feel that the market will either stay flat or deteriorate, stated the CFA Society Emirates survey.
 
Investor sentiment and lack of understanding, along with a weak regulatory environment, are the biggest challenges for the growth of REITs in the Middle East, it added.
 
The survey revealed that the majority of CFA Society Emirates’ members ranked expected returns from a REIT portfolio higher than cash equivalents and bonds, and said that they intend to invest in REITs. 
 
However, they believe that the returns from REITs would be lower than stocks, private equity and real estate. Most investment professionals surveyed expect that the UAE’s residential and commercial real estate market will either stay flat or deteriorate over the next 12 months. 
 
Amer Abdul Aziz Khansaheb, CFA, the president of CFA Society Emirates, said: "Over the past decade, the GCC has seen a surge of activity in the region’s relatively youthful REIT market. Recent developments, such as the oversubscription of ENBD REIT and Johor Corp’s Al-Salam REIT, suggest that there is a rising demand amongst investors for this particular asset class."
 
"Investment professionals recognise that REITS are attractive to investors because they offer a more diversified portfolio compared to buying shares in a listed property company. Additionally, with declining oil revenues and the growing likelihood of fiscal restructuring measures, REITs would provide investors with a hedge against any inflationary trends," he noted.  
 
The key findings from the survey are: 
 
*Investor understanding of REITs was seen as the biggest challenge for its growth and development in the region.
*About 62 per cent are convinced returns from a REIT portfolio will be lower than stocks, 82 per cent feel that REITs will deliver lower returns than private equity and 46 per cent are of the opinion that real estate would deliver higher returns than REITs. 
*A large majority of respondents said that the expected returns from a REIT portfolio would be higher compared to cash equivalents (83 per cent) and bonds (73 per cent). 
*About 76 per cent of members see institutional investors investing in REITS, compared to 23 per cent who felt that it would be retail investors. 
*About 62 per cent of respondents said that they intend to invest in REITS.
*About 74 per cent of members expect the outlook for the UAE’s residential real estate market to either stay flat or deteriorate. 
 
"With the UAE’s real estate market having the highest demand in the GCC amongst regional and international investors, a less volatile asset class, such as REITs, is expected to become more attractive, as investors seek to reduce portfolio risk given the current macroeconomic environment," said Khansaheb. 
 
"However, our survey shows that it is important for investment professionals to increase investor understanding about REITs and gain their trust through prudent and ethical investment strategies which put investor interests first. This, along with creating a more robust regulatory environment to gain investor confidence, is significantly important for the growth of REITs in the region," he added.
 
With 600 members, CFA Society Emirates is the largest member society in the GCC region comprising over half of the total number of CFA charterholders in the Gulf. The society also represents a majority of the 4,773 candidates from the region who took the CFA exams in 2009.-TradeArabia News Servicce