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REITs (Real Estate Investment Trusts) are a way to own a share in income-generating real estate, such as shopping malls, offices, warehouses, and hotels, with a small amount starting from the price of a single unit. You buy and sell their units from your trading portfolio just like stocks.
What Do REIT Funds Mean?
The word “REIT” is an acronym for Real Estate Investment Trust, and the system in Saudi Arabia calls them Real Estate Investment Traded Funds. Saudi Tadawul defines them as real estate funds available to the public whose units are traded on the financial market, and they invest in developed and ready properties that generate periodic income from rent or operations.
The idea is simple: Instead of buying a whole property for hundreds of thousands or millions, the fund pools the money of thousands of investors and buys ready-made and leased properties, then distributes a large portion of net rents to unit holders.
The Rules Governing REIT Funds
- Distributing at least 90% of net profits annually to unit holders, according to Saudi Tadawul.
- Focusing on developed income-generating properties.
- Periodic Disclosure: The fund manager is obligated to publish periodic reports on the Tadawul website, just like listed companies.
How Do You Profit from REITs?
There are two sources of return:
- Cash Dividends: Due to the 90% rule, distributions represent the most important part of the return for most REITs. Many distribute on a quarterly or semi-annual basis.
- Unit Price Change: If property values rise or demand for the fund increases, the unit price in the market may rise, and vice versa.
Sources
- Saudi Tadawul: Funds and Real Estate Traded Funds
- Capital Market Authority (Thameen Program): Real Estate Traded Funds
- Disclaimer: This content is educational and is not considered investment advice or a recommendation. Review the fund’s terms and conditions and its periodic reports before investing.
