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Oman’s Capital Market Authority (CMA) issued the regulatory framework (Regulation) for the introduction and trading of real estate investment trusts (REITs) in early January 2018.

Oman joins the UAE, Saudi Arabia and Bahrain as GCC countries which have established REIT regulations. REITs have gained popularity in GCC countries in recent years as a mechanism for smaller investors to invest in real estate while offering real estate companies access to a larger pool of investors to fund acquisitions and development projects via capital markets.

The keenly-awaited Regulation contains detailed guidelines for setting-up, managing and operating REITs. It expands existing rules on investment funds in the CMA’s Executive Regulations (Decision 1/2009). The Regulation governs both conventional and shariah-compliant REITs and allows for different structures such as closed-end REITs, public REITs and special REITs. Under the Regulation, a REIT must have a minimum paid-up capital of OMR10 million, offer at least 40% of units to the public in the case of a public REIT, and pay a minimum of 90% of the net annual profits as a dividend to unit holders. In contrast to other jurisdictions which limit foreign ownership to 49%, international investors can own up to 100% of a REIT set up in the Sultanate.

REITs may invest only in real estate properties, special purpose vehicles, assets (whether or not they relate to real estate), monetary amounts, deposits and financial instruments. The Regulation contains a number of specific restrictions on permitted investment activities. For example, a REIT may not offer credit facilities, purchase vacant land, nor invest more than a certain percentage of its asset value outside Oman. In all cases, a minimum 50% of the total value of the REIT’s assets has to be invested in income-generating real estate and/or special purpose vehicles.

The stricter regulatory framework for REITs in comparison to direct investment in a real estate asset or investment via a fund should increase transparency in the real estate market where visibility around asset performance, ownership and legislation are key to attracting capital. The significance and potential of REITS in Oman as a vehicle for driving investment and liquidity in the real estate industry, as well as boosting capital market activity, was identified by Tanfeedh — Oman’s National Programme for Enhancing Economic Diversification — as one of nearly 100 economic initiatives for implementation over the short term.

For more information, contact Ardeshir Patel or Asad Qayyum.