Practice Briefing: The inception and preliminary performance analysis of REITs in the Kingdom of Saudi Arabia
| Date | 06 February 2025 |
| Pages | 95-110 |
| DOI | https://doi.org/10.1108/JPIF-03-2024-0038 |
| Published date | 06 February 2025 |
| Author | Muhammad Jufri Marzuki,Graeme Newell |
Practice Briefing: The inception and
preliminary performance analysis of
REITs in the Kingdom of Saudi Arabia
Muhammad Jufri Marzuki and Graeme Newell
School of Business, Western Sydney University, Sydney, Australia
Abstract
Purpose –The Saudi REIT market’s introduction in 2016 was part of the Kingdom of Saudi Arabia’s Vision
2030 master plan to diversify the country’ssources of revenue and reform its financial sector. Despite the Saudi
REIT market’s nascent state, it has experienced significant growth in a short period of time, being the largest
REIT market in MENA. Saudi REITs are designed using well-established global REITstandards to facilitate
efficient capital influx into commercial property investment opportunities in Saudi Arabia. The core aim of this
paper is to highlight the development of Saudi REITsand empirically assess their performance over the period
from December 2018 to December 2023.
Design/methodology/approach –Using monthly total returns in local currency (SAR), the risk-adjusted
performance and portfolio diversification attributes of Saudi REITs are assessed. A series of optimal portfolios
are constructed to identify the potential added-value role of Saudi REITs in a multi-asset framework.
Findings –Whilst Saudi REITs’ average annual return performance is lower than that of stocks, their annual
returns are delivered with less volatility, thus giving a competitive overall risk-adjusted performance against
other asset classes. This is a testament to Saudi REITs’ higher income return performance due to the fiscal-
efficient framework. Further, when Saudi REITs are introduced in a stocks-bonds portfolio, they are able to
improve the portfolio’s overall return whilst reducing the volatility, with their allocation in the asset mix
observed to effectively scale throughout the portfolio risk-return spectrum.
Practical implications –Saudi REITsare an emerging investment opportunity for investors seekingexposure in
a relatively stable and fast-growing MENA property market. As Saudi Arabia makes continuous reforms to
improve the accessibility and transparency of its commercial property market, Saudi REITs are the most
effective way to date for domestic and overseas investors to obtain exposure to the Kingdom’s property
investment opportunities. Importantly, the encouraging preliminary results as identified in this paper provide
valuable insight into the potential trajectory of Saudi REITs, given their significant contributing role to achieve
the strategic objectives of Vision 2030.
Originality/value –This paper is the first empirical investigation that provides a preliminary performance
validation of Saudi REITs as a listed pathway to commercial property exposure in Saudi Arabia. This study
provides empirical evidence that enables more informed and practical decision-making in property investment,
particularly in understanding the strategic importance of Saudi REITs within an investment portfolio.
Keywords Saudi Arabia REITs, Risk-adjusted returns, Portfolio diversification, Asset allocation, Vision2030,
Commercial property
Paper type Practice Briefing
Introduction
The proliferation of Real Estate Investment Trusts (REITs) in the Middle East and North
Africa (MENA) region is a significant evolution in the region’s property investment landscape
in recent years. This structural change is contributed to by a combination of several reasons
such as (1) accelerated regulatory reforms, (2) increasing investor appetite for property
exposure and (3) better understanding of the benefits of REIT implementation (PwC, 2018).
Several MENA countries, most notably members of the Gulf Cooperation Council (GCC)
such as the Kingdom of Saudi Arabia (Saudi Arabia) and the United Arab Emirates (UAE), are
at the forefront of these reforms to modernise and liberalise their financial markets, aiming at
attracting foreign investment, to enhance economic diversification and increase their property
markets’ competitiveness (Pillai et al., 2021). Several MENA countries have introduced their
REIT legislation, such as Israel (REIT introduction year: 2005), followed by the UAE (2006),
Journal of
Property
Investment &
Finance
95
As this article is a briefing commissioned by the editor, it has been subject to editorial review only.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Journalof Property Investment&
Finance
Vol.43 No. 1, 2025
pp.95-110
©Emerald Publishing Limited
e-ISSN:1470-2002
p-ISSN:1463-578X
DOI10.1108/JPIF-03-2024-0038
Saudi Arabia, Bahrain and Qatar (2016), Oman (2018) as well as Kuwait (2019). It is important
to note that only Israel, the UAE, Saudi Arabia and Kuwait possess active participants in their
respective REIT markets, see Table 1.
In Saudi Arabia, the formalisation of REITsin November 2016 was part of Vision 2030, the
Kingdom’s reform masterplan to reduce the country’s dependence on oil, diversify its
economy and develop public service sectors such as health, education, infrastructure,
recreation and tourism (KSA, 2016). Whilst still considered in a nascent state, the increasing
popularity of Saudi REITs has surpassed initial expectations, reflecting growing investor
confidence and interest in this property investment vehicle. This is in line with the significant
growth of its market capitalisation, increasing from around SAR 600 million (US$ 160
million) in the early days to SAR 17.8 billion (US$ 4.8 billion) in December 2023 (see
Figure 1). Despite this, there is a paucity of empirical research focussing on the qualitative and
quantitative investment characteristics of Saudi REITs. Previous studies are primarily
concentrated on the residential sector in Saudi Arabia, for example house price index
construction (Algahtani, 2022) and linkages between residential with several variables, such
as mortgage (Ajeeb and Wei, 2022) and price of crude oil (Alola, 2021). As for commercial
property, several factors are found to impact foreign direct investment in the MENA markets
including Saudi Arabia, such as the level of political stability, existence of an institutional
property market and the level of market liquidity (Salem and Baum, 2016). Further, the
establishment of REITs could enhance liquidity in the property market and solidify
governance best practices in these markets (Pillai et al., 2021).
Table 1. Significance of the MENA REIT markets: 2023
Country No. of REITs Market capitalisation (US$B) Percentage of MENA market (%)
Saudi Arabia 18 $4.5 B 65.2
Israel 6 $2.0 B 29.0
Kuwait 1 $0.2 B 2.9
United Arab Emirates 2 $0.2 B 2.9
Total MENA 27 $6.9 B 100
Source(s): Authors’ own compilation from EPRA (2023a)
0
1,000
2,000
3,000
4,000
5,000
6,000
0
5,000
10,000
15,000
20,000
25,000
Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 Nov-21 Nov-22
US$ billion
SAR billion
Source(s): Authors’ own compilation from S&P (2024b)
Figure 1. Growth in market capitalisation for the Saudi REIT market: Nov 2016–December 2023
JPIF
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