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Emirates NBD (ENBD) REIT (CEIC) Limited (ENBD REIT), a Shariah compliant real estate investment trust, managed by Emirates NBD Asset Management Limited recently reinforced the belief of investors in REITs as an asset class following a better than expected response. REITs today have become an increasingly popular vehicle for real estate ownership. Global market capitalization now stands at approximately USD 1.7 tn, up from USD 734 bn in 2010 (as per EY’s Global Perspectives 2016 REIT report). Besides US, the country which is considered the hub of this investment option, the two fastest-growing markets in the last 5 years have been Australia and Japan, emerging as the
2nd and 3rd largest global REIT markets. Here we take a brief look at the history of this asset class as it has taken strides to its current behemoth status and growing popularity.
REITs trace back their origins to 1960 when President Eisenhower signed into law the REIT Act. REITs were created in order to give all investors the opportunity to invest in large-scale, diversified portfolios of income-producing real estate. Subsequently the National Association of Real Estate Investment Funds (NAREIT) is incorporated. NAREIT, today, is the worldwide representative voice for REITs and publicly traded real estate companies with an interest in US real estate and capital markets. The latter part of the 60’s and early 70’s saw the industry expand both within the US and across the world. Total industry assets swelled from around USD 1 billion to more than USD 21 billion. In this same period, the first European REIT legislation was passed which marked the beginning of the global spread of the REIT model. The following decade saw REITs continue to see a surge in popularity across the globe. This culminated with the 1st Equity REIT IPO in 1991 of Kimco Realty Corporation marking the beginning of the modern REIT era. REITs began to spread across Asia with the launch of the Japanese REITs in 2001. The following years saw REIT legislations signed across France (2003), Germany (2007) and the UK (2007).
In response to the global credit crisis, listed REITs respond by deleveraging their balance sheets. Listed REITs and REOC’s (Real Estate Operating Companies) raised USD 37.5 billion as investors favoured companies strengthening their balance sheets following the credit crisis. In 2014, India became the 31st country to enact the REIT legislation following action by the Securities and Exchange Board of India.
As per Investopedia, a Periodic Chart of Investment Returns put together by JP Morgan Asset Management for the years 2000-2015 revealed REITs as the top-performing asset class in eight of those sixteen years. This underlines the fact that REITs have proven themselves as a valuable asset within many a portfolio and deserve a look into, assuming research and related groundwork is conducted well in the selection given the vast available options.