Reit Move, Reit Time

Oman’s ongoing drive toward economic diversification and private sector participation, naturally encompassing its financial markets, has required a legal extension of the range of instruments available to would-be investors, notably foreign nationals, and how best to regulate them. Accordingly, and spanning the financial and real estate sectors, the National Program for Enhancing Economic Diversification (Tanfeedh) has legislated the emergence of real estate investment funds (REIFs), or else real estate investment trusts (REITs) to foster private sector development.

Determined Steps

REITs had already become well established in the GCC, with Saudi Arabia and the UAE setting their respective legislations in motion. Yet, prior to Oman’s REIT Regulations, investors keen to invest in a fund that featured real estate in its portfolio were limited by Executive Regulations of the Capital Market Law (Decision 1/2009) to a maximum threshold of 30% of the fund’s equity. Given the real estate boom on the back of exponential economic diversification, this fell short of demand. In 1Q2018, the Capital Market Authority (CMA) issuance of Administrative Decision No 2/2018 enshrined related legislation within the Sultanate. These funds are traded on the local bourse, the Muscat Stock Market (MSM) boosting liquidity in the transparent environment investors value. The Sultanate’s REIT Regulations build on Ministerial Decision 95 of 2017 penned by the Ministry of Housing, specifically addressing REITs.

The REIT
The minimum capital for REITs is set at OMR10 million, reflecting the high costs prevalent in the real estate sector. Real estate investment funds may be either investment funds or financial trusts and may be raised directly through bond or Sukuk issuance of up to 60% of total assets.

Investment Stipulations and Foreign Participation

The REIT Regulations stipulate the asset classes that REITs may invest in, under certain conditions. These broadly speaking are real estate properties and related assets, CMA-licensed special purpose vehicles (SPVs) created to contain properties, assets unrelated to real estate properties, and cash, deposits, and money market instruments. Residential complexes in a portfolio must not be under 10,000sqm in area, and may not include undeveloped land, or that set aside for agricultural use. While REITs may invest in real estate under construction, the purchase contract is conditional upon its completion and commercial usage to generate a return. A trust’s investment scope is capped at 75% of the trust’s total assets within the Sultanate unless the CMA grants an exception. This scope for expansion is also extended in law to Shariah-compliant counterparts in the REIT sector. A minimum 90% of annual profits must be distributed to the holders of a REIT’s units; all this in a tax-exempt environment. Notably, 100% foreign investment is now allowed in law, with the stipulation that not less than 40% of the REIT’s capital be offered to the public.