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Saudi Arabia regulator prepares rules for real estate funds

Saudi Arabia's Capital Markets Authority (CMA) has published draft rules on proposed real estate investment traded funds (REITFs).04 Aug 2016

The funds would be publicly offered and traded on the Saudi Arabia stock exchange, and would invest in residential, commercial, industrial, and agricultural real estate, the CMA said.

The rules cover the management, operation and ownership of the funds, which will not be allowed to invest more than 25% of their assets outside Saudi Arabia.

REITFs' primary investment objective is to invest in the construction of real estate that generates periodic income, and distribute a percentage of the net income in cash to the unit holders, the CMA said.

At least 75% of the fund's total assets value must be invested in construction-developed real estate, and no investment can be made in vacant land. At least 90% of the fund's net income must be distributed annually to the unit holders, the CMA said.

Fund managers must appoint one or more custodians authorised to conduct activity in the Kingdom, to take custody of the assets of the fund and its documentation, and a property management company that specialises in, and has experience, in managing properties.

Dubai-based finance law expert Amir Ahmad of Pinsent Masons, the law firm behind Out-Law.com said: "The draft rules aim to ensure that the investment funds focus primarily on domestic real estate investment opportunities. This provides tangible evidence that the Kingdom is taking pro-active steps towards diversifying its economy."

The CMA has asked for comment on the draft rules by 23 August.