Regulations issued for Real Estate Investment Funds

The Capital Market Authority (CMA) has issued Administrative Decision No 2/2018 enshrining the regulations governing the introduction and management of Real Estate Investment Funds (REIFs) in the Sultanate.  Also known as Real Estate Investments Trusts (REITs), REIFs were mooted by the National Programme for Enhancing Economic Diversification (Tanfeedh) to help bolster the role of the private and financial sectors in Oman economic development.

Real Estate Investment Funds are collective investment schemes in properties through financing investment by rights in the title. The funds own income generating properties  by developing and management.

Shaikh Abdullah Salim al Salmi Executive President of CMA, said the issuance of the regulation is a constructive step which would contribute to creating financing instrument for  a large segment of the community to avail real estate investment  and would attract more foreign funds for the benefit and stimulation of the real estate sector adding that real estate investment funds will be available for the public by offering part of the capital for subscription in accordance with the regulation and the units would be traded on the MSM which is realization of the role of the capital market in supporting the national economy.

Al Salmi added that real estate investment funds will be managed by professional entities licensed by CMA and will be  regulated and supervised by CMA according to the stock market’s rules and regulations and disclosure requirements for their financial statements and the material information to provide protection and fairness for investors based on the type of the fund.

The Executive President said the issuance of the regulation is the culmination of the efforts to improve the business environment and activation of the real estate sector in the Sultanate which is considered an initiative of the National Programme for Enhancing Economic Diversification (Tanfeedh).

In drafting the regulation, the CMA looked at the experience of leading countries in this field and also evaluated the local market and future requirements to ensure quality of real estate investment funds management, while also taking into account the existing opportunities to upgrade the real estate business in the Sultanate.

He added that the main features of the regulation are that the minimum capital of real estate investment funds will be RO 10 million due to  the nature of real estate business which require huge funds. The funds would offered for public subscription and the special purpose vehicle should distribute not less than 90 per cent of the annual profits to the holders of its units. Furthermore, the funds would be exempt from taxes as per the income tax law.

Commenting on the investment guidelines, Al Salmi said the regulation contains a number of legal restrictions for such types of funds. The investment rules direct to investment in existing  income generating properties not in empty lands and in properties of commercial nature which could be residential or industrial or tourist. The rules also allow investment of part of the fund’s assets at 75 per cent of the total assets in the Sultanate. The founders can invest not more than 25 per cent of the total assets abroad to encourage investment in the Sultanate and allow investment opportunities outside the Sultanate. The regulation also provides for Sharia compatible real estate investment funds to expand the base of participation of the community.

It is noteworthy that the Ministry of Housing has issued Ministerial Decision No 95/2017 dated November 15, 2017 relating to ownership of properties in the Sultanate. The Decision allows ownership of properties, but limits purchases in certain prohibited areas.

The decision states in the rules for ownership of properties that the property shall be existing and shall be in the form commercial, residential and commercial, industrial and tourist. The decision allowed ownership of existing residential complexes of an area not less than 10,000 square meters but not agricultural or empty lands.

The ministerial decision is part of the efforts being exerted by the Housing Ministry to regulate the real estate market and maximize economic and social returns in addition to enhancing liquidity in the MSM by enabling the offering of such funds for subscription and to give diversified options for seekers of suitable homes which would enhance the investment opportunities.

According to Abdullah Salim al Makhaini, Secretary General of the Real Estate Register, the decision seeks to give expression to the aspirations of investors whether nationals or foreigners as investment in such funds is easy and less risky. It also seeks to enable the creation of jobs for citizens. The funds may not be wholly owned by Omanis and the whole capital may be held by non-Omanis to attract funds from abroad. The funds may be jointly owned by Omanis and non- Omanis.

He added the decision allows real estate investment funds established in the Sultanate and licensed by CMA to own properties  required to practices the licensed business through buying  provided the property shall be existing by producing  building completion certificate issued by the competent municipality and ownership shall be restricted to properties of commercial and residential and commercial, industrial and tourist usage.

After obtaining the license from CMA, the owners of the fund can apply to the Ministry of Housing to own the properties in accordance with the terms and conditions and title deed can be issued.

Abdullah Salim Al Makhaini said the decision  allows ownership of residential complexes provided the area shall not be less than 10,000 square meters but the funds shall not own empty lands or properties of agricultural use.  Applications for ownership of properties by real estate investment funds not wholly owned by Omani at the prohibited areas shall not be admitted.

Real estate investment funds may be in the form of investment funds or financial trusts and can be raised directly through the issuance of bonds or Sukuk up to 60 per cent of the total assets. Foreign investment is open up to 100 per cent but will be obligated to offer not less than 40 per cent of the capital to the public.

Funds may not invest in properties under construction at more than 10 per cent of the total assets and are allowed to establish and own special purpose vehicles in the form of fund to obtain  tax exemption.