A recent report by Al Jazeera Capital indicated a return to growth in the Saudi economy despite the coronavirus pandemic, which has affected a quarter of a billion people worldwide so far.
A recent report by Al Jazeera Capital indicated a return to growth in the Saudi economy despite the pandemic.
Strong economy resists challenges
The report monitored the Saudi economy's continued resistance to the variables imposed by the COVID-19 pandemic, as the economy recovers from the combined effect of restrictions imposed to limit the spread of the pandemic and the impact of lower oil prices.
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According to GASTAT's estimates of GDP, the economy improved by 1.5 % in Q2 2021 from the corresponding quarter of the previous year (this is the first improvement since the COVID-19 outbreak) versus a decline of 3.0 % in Q1 2021 from the corresponding quarter of the previous year and 7.0 % in Q2 2020.
The report monitored that real estate activities during Q1 2021 increased by 6.6 % compared to Q4 2020 by 2.6 %, contributing 7.9 % to GDP. In addition, with oil prices rising by around 40 % year-to-date.
Al Jazeera Capital also expects the economic recovery to accelerate in the second half of 2021, achieving increased demand for real estate, helping REITs to expand the real estate portfolio, improve occupancy rates, and increase rental income. Real estate investment trusts (REITs) can expand the real estate portfolio, improve occupancy rates, and increase rental income.
Al Jazeera Capital stressed that with the gradual easing of restrictions imposed to limit the spread of the COVID-19 pandemic and the reopening of malls and retail centers, REITs are likely to see an improvement in their rental income, and opening international borders for specific nationals and allowing foreign visitors from certain countries will likely help the recovery of the travel, tourism and hospitality sectors and thus support REITs that have investments in these sectors, and the report noted that low interest rates for REITs will allow borrowing to strengthen their positions According to the report, REITs are a good option for investment thanks to low interest rates and the recovery in stocks over the past few months. Real Estate Investment Trusts (REITs) are a good choice for investment.
Year-to-date, the main market index is up 30% and trading near all-time highs. Opportunities for capital gains are currently limited in most stocks. In addition, based on the prevailing low interest rates () SIBOR is below 1% since the beginning of 2021), fixed income bond yields are considered low. Therefore, REITs whose dividends are expected to improve after occupancy rates and rental income normalize are a good option for investors to generate good regular dividend income.
While the increase in investments through REITs is a positive sign for the sector: After the decline in 2020, several REITs have focused on expanding their real estate portfolios, as opportunities are expected to increase after the recovery to a pre-pandemic situation. While the increase in investments through REITs is a positive sign for the sector.
Year-to-date through August 2021, Saudi-listed REITs have acquired more than SAR 2.2 billion worth of real estate in sectors such as warehouses, education, hotels, apartments and offices, and some REITs aim to diversify their portfolios with a focus on more resilient sectors such as healthcare and education. Thus, the trend clearly points to the expansion of Saudi REITs" assets in the near future, highlighting the sector's potential.
-Classification of REITs: There are 17 REITs listed on the Saudi Stock Exchange. There are 17 REITs listed on the Saudi Stock Exchange.
The report indicated the need to assess the attractiveness of REITs and categorize them based on valuation and operational criteria. Also, the importance of taking into account the importance of sectoral and geographical diversification of funds and equity liquidity.
The report indicated that based on the weighted ranking, Bonyan REIT, Al Maather REIT, Mulkia REIT, Musharaka REIT and Al Ahli 1 REIT are the top 5 picks from this sector.
Al Jazeera Capital noted that it selected these funds mainly based on their ability to pay good dividends, provide good implied rates of return and a relatively lower valuation than current market prices. Al Jazeera Capital noted that it selected these funds mainly based on their ability to pay good dividends, provide good implied rates of return and a relatively lower valuation than current market prices.
Global REIT dividends remain under pressure due to the impact of the COVID-19 pandemic.
The dividend yield of the REIT index in the Saudi market is 4.51 % (based on 2020 dividends), compared to the performance of REIT indices in global and developed markets, where Saudi REITs provide a better return for investors. Saudi REITs provide a better return for investors.
The report expects Saudi REITs' dividend yields to improve as the economy continues to recover. In addition, demand for real estate is expected to continue to rise in the medium and long term, supported by the Saudi Vision 2030 program, providing growth opportunities for REITs, and the report predicted that Saudi REITs will continue to outperform similar funds globally. The report predicted that Saudi REITs will continue to outperform similar funds globally.
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