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Find out more about Real Estate Investment Traded Funds (REITs), Exchange Traded Funds (ETFs) and Close-ended Investment Traded Funds (CEFs) below.
- REITs
- ETFs
- CEFs
Real Estate Investment Traded Funds
What are real estate investment traded funds (REITs)?
Real Estate Investment Traded Funds, or REITs, are financial instruments that allow all types of investors to obtain investment exposure to the Real Estate Market. This is achieved through collective ownership of constructed developed real estate qualified to generate periodic and rental income. REITs can invest locally, regionally and globally, where the total asset value outside the Kingdom shall not exceed 25% of the fund's total asset value. REITs consist of units, where each unit represents ownership in the underlying real estate. REITs are traded on the Exchange just like equities during trading hours. In addition, REITs are required to distribute at least 90% of the fund’s net profits to the unit holders annually, as per the instructions issued by the Capital Market Authority (the CMA).
With regards to control and supervision, similar to other investment vehicles, REITs adhere to the rules and regulations issued by the CMA. REITs also abide by the high standards of transparency and disclosure that are already applied in the current equity market.
Characteristics of REITs
- Conditional Income: Distributed profits to unit holder to be no less than 90% of the fund's net profits.
- Ease of Investment: REITs are characterized with the transparency of their regulations and ease of dealing with its units - both buying and selling - similarly to equities listed on the main exchange.
- Existing Real Estate: REITs contain established, developed, ready to use and income generating real estate assets from rental or operational use.
- High Transparency: The fund manager is obligated to publish periodical reports on the funds’ performance being disclosed on the Saudi Exchange's website similarly to other reports by listed equities on the main market.
Listing & offering requirements
Fund Legal Type |
Closed – ended fund |
Number of Investors |
Minimum 200 investors |
Initial Offer |
Minimum SAR 500 Million |
Nominal Value per Unit |
SAR 10 per unit |
Assets Ownership |
The assets must be registered under the name of third party (custodian) and owned by the unit holders |
Distributions |
At least 90% of the fund’s net profits must be distributed annually to the unit holders |
Leverage |
The borrowing of the fund's must not exceed 50% of the total assets value of the fund |
Investment |
At least 75% of the fund's total assets value according to the last audited financial statements must be invested in constructed developed real estate qualified to generate periodic and rental income |
Vacant Lands |
The fund manager is prohibited from investing in vacant lands |
Real Estate Development |
The fund manager is allowed to invest up to a maximum of 25% of the fund's total assets value according to the last audited financial statements in real estate development whether on real estates owned by the fund manager or not, and to renovate or redevelop these properties |
Real Estate Outside the Kingdom |
The fund manager shall not invest more than 25% of the fund's total assets value according to the last audited financial statements in properties outside the Kingdom |
Public Ownership |
At least 30% of the total REIT units are owned by unit holders from the public |
Exchange Traded Funds
What are exchange traded funds (ETFs)?
ETFs are investment funds that track an index, and are divided into equal units which are traded on the exchange during official trading hours. ETFs enjoy advantages of both mutual funds and stocks at the same time.
Investing in ETFs
- Primary Markets: ETF Units are created and redeemed by the Fund Manager
- Secondary Markets: ETF Units are traded on the Exchange
Characteristics of ETFs
Traded on Exchange (Flexibility) |
Yes |
Visibility into Holdings (Transparency) |
Daily |
Units Creation and Redemption |
Follows the Fund’s Terms and Conditions |
Number of Units |
Open ended: Changes at end-of-day based on creations and redemptions |
Pricing |
Primary Markets: Net Asset Value (NAV) |
Market Maker |
Listing requirement |
Liquidity |
Primary Markets: Large minimum transaction size following the Fund’s Terms and Conditions |
Investors |
Primary Markets: Follows the Fund’s Terms and Conditions |
Closed-Ended Investment Traded Funds
What are closed-ended investment traded funds (CEFs)?
CEFs are investment funds available to the public and its units are traded on the market during trading hours similar to Real Estate Investment Traded Funds “REITs”. It aims to facilitate investments in different sectors and fields. Also, CEFs units represent ownership of the fund's assets. CEFs like other securities in the market, are subject to supervision by the Capital Market Authority and Saudi Exchange, each according to their duties. Capital market regulations also oblige CEFs to have high levels of transparency and disclosure by publishing periodic reports for the fund on the website of the Saudi Exchange.
Characteristics of closed-ended investment traded funds (CEFs)
- An investment opportunity: providing more liquidity to investors by buying and selling fund units during trading hours
- Ease of investment: CEFs are distinguished by clarity of their regulations and ease of trading their units - buying and selling - similar to shares and real estate investment traded funds listed on the Saudi Exchange.
- Transparency requirements: The fund manager is obligated to submit periodic reports according to the activity of each fund, and they are displayed on the Saudi Exchange website like other reports of companies listed on the Saudi Exchange.
- Assets Diversification: CEFs are characterized by the diversity of investment fields in one fund. Closed-ended traded investment is an asset or a group of investment assets in one fund, and they differ from Real Estate Investment Traded Funds (REITs) in the way of dividend distribution and ownership of assets and investments, as closed-ended traded funds are not allowed to invest in real estate investments.
Offering and listing criteria
| Criteria | Main Market |
|---|---|
Number of Unitholders |
At least 200 unitholders |
Public Ownership |
At least 30% |
Type of Investors |
All types of investors |
Minimum Market Cap |
SAR 300 million |
Leverage |
The fund's borrowing may not exceed 30% of its net asset value |
Legal Structure |
Closed ended fund |
Nominal Value |
SAR 10 per unit |
What are the investment scopes and limitations of CEFs in the Main Market?
Investment Scopes |
There are many asset classes available for the fund manager to invest in, for example, but not limited to:
|
Investment Restrictions |
|
A table for comparing CEFs, REITs, ETFs, and equity in the Main Market
| Characteristics | Closed-ended Investment Traded Funds - CEF | Real Estate Investment Traded Funds - REIT | Exchange Traded Funds - ETF | Equity – Main Market |
|---|---|---|---|---|
The Legal Structure |
Closed ended fund |
Closed ended fund |
Open ended fund |
Public company |
Minimum Market Cap |
SAR 300 million |
SAR 500 million |
SAR 10 per unit |
SAR 300 million |
The Nominal Value |
SAR 10 per unit |
SAR 10 per unit |
N/A |
SAR 10 per unit |
Number of Investors |
At least 200 unitholders |
At least 200 unitholders |
N/A |
At least 200 shareholders |
Profit Distribution |
There is no requirement to distribute profits |
At least 90% of the fund’s net profits must be distributed annually to the unit holders |
There is no requirement to distribute profits |
There is no requirement to distribute profits |
Leverage |
The fund's borrowing may not exceed 30% of its net asset value |
The fund's borrowing may not exceed 50% of its net asset value |
The fund's borrowing may not exceed 10% of its net asset value |
N/A |
Public Ownership |
At least 30% |
At least 30% |
N/A |
At least 30% |
Trading Hours |
Trading in the market during official trading hours |
Trading in the market during official trading hours |
Trading in the market during official trading hours |
Trading in the market during official trading hours |
Fluctuation Limits |
±10% |
±10% |
±10% |
±10% |
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