Funding growth

If you want to participate in the real estate market, but would rather have dividends paid to you on a regular basis and would also prefer that your investment portfolio is handled by a professional manager, an option worth considering is investing in real estate funds.

These are private equity funds which buy up shares of Real Estate Investment Trusts (REITs), and/or make investments in real estate companies and related projects within the residential, commercial, retail, leisure and hospitality sectors that show potential for strong investment returns.

REITs normally take the form of a security that sells like a stock on the major exchanges and invest in various kinds of real estate-related assets, such as hotels, office buildings, shopping centres and mortgages secured by real estate, by initially pooling together funds of many individual and institutional investors.

REITs own, develop, manage and sell these real estate assets, giving investors access to a professionally-managed portfolio of real estate properties. The REIT pays out returns on these investments based on the income it generates by collecting rent and selling the properties.

Most funds' investment portfolios are continually adjusted under the supervision of professional managers, who forecast the future performance of investments appropriate for the fund and choose those which he or she believes will most closely match the stated investment objective.

The fund manager trades the fund's underlying securities, realising capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors, after deduction of management and other related fees.

Real estate funds are considered investor-friendly because they are relatively free of the complexities of other types of investment vehicles, and offer a breadth of diversification which is not possible when one directly invests in the real estate market by buying a physical property.

Since the real estate projects and companies in which the funds invest are all traded like stocks on the major exchanges, it makes it far easier for fund managers to buy and sell the assets or the shares than to buy and sell physical (bricks and mortar) real estate in private markets, and therefore the enhanced liquidity of funds.

In summary, real estate funds offer investors:

• Lower cost of entry than direct investment into bricks and mortar properties

• Opportunity to effectively spread one's risk across many types of assets

• a stable income stream in the form of dividends

• active management of the fund by a professional

On the level of individual investors, real estate funds give people who may not want to invest directly in a villa or apartment at one of the UAE's freehold or leasehold developments an opportunity to also have some exposure to the local property market. This is especially appealing to foreign investors who neither have much understanding of the local UAE market, nor the time to research it themselves.

According to many local financial institutions and market analysts, there is certainly a niche to fill among foreign investors and the large institutional investors who prefer to diversify their property holdings in many markets, and would welcome an avenue to get into the local UAE market.

READERS' COMMENTS

MORE FROM ARABIANBUSINESS.COM