REIFs to Provide new Source of Financing for Property Market

Real estate investment funds (“REIFs”) are one of the primary ways to invest in real estate. A REIF owns income-producing real estate in a range of property sectors and is generally seen to have a number of benefits to investors. Investment in REIFs was made possible in Oman by the Capital Markets Authority (the “CMA”) Organisational Regulation of Real Estate Investment Funds 2 of 2018 (the “REIF Regulations”) and Ministerial Decision 95/2017 issued by the Ministry of Housing (“MD 95/2017”).

The first Omani REIF is set to debut on the Muscat Securities Market (“MSM”) shortly, and it is hoped that the new form of investment vehicle will encourage new inflows of capital into Oman’s promising property sector.

REIF Regulations in the Sultanate permit institutional foreign investors, as well as expatriates resident in the Sultanate, to own units in REIFs.

Interest in real estate is not limited to commercial properties, but extends to the development of infrastructure, warehouses, factories, and projects for small and medium enterprises (“SMEs”) – all of which require some form of financing. As financing has until now been provided principally by bank lending, the CMA was very keen to see funding alternatives becoming available so as to diversify the systemic risk on banks lending into the real estate market.

Oman’s REIF Regulations incorporate best practices gleaned from other jurisdictions around the world. While most of the provisions in the Regulations are principle-based, there is a lot of flexibility – in relation to the fund structure, for example. Some jurisdictions specify the structure for Islamic REIFs. In Oman, the REIF Regulations have left this open. All that is required for an Islamic REIF is that there should be a shariah advisory board in place; the choice of structure is left to the contracting parties provided that the structure complies with the Accounting and Auditing Organisation for Islamic Financial Institutions.

Further, the REIF Regulations allow for the transfer of special purpose vehicles (“SPVs”), typically set up to hold a particular real estate asset, to a REIF. Funds may hold various assets either directly or through an SPV, and can hold any assets in Oman, not only those in integrated tourism complex projects.