Economic analysts attributed the decline in net profits of real estate funds (REITs) in Saudi Arabia during the first half of 2023 by about 58 percent, to the elevated interest rates, which reached 5.25 percent - the highest rate in the past 22 years.
The net profits of the 18 real estate funds traded in the Saudi market declined to SAR 158 million during the first half of this year, compared to SAR 374 million in the first half of 2022, despite the growth of their rental revenues during the same period by about 10 percent to reach SAR 970 million.
In remarks to Asharq Al-Awsat, senior businessman Hamad Al-Olayan said that this decline was due to two main reasons, namely, the interest rates reaching record levels and their continuous rise during the last period, and the high valuations of funds in public offerings.
Al-Olayan believes that the recent hints of the US Federal Reserve to continue to raise interest rates, suggest the possibility of a decrease in the prices of shares of real estate funds during the next six or eight months.
He noted that all real estate funds that depend on financing, whether REITs or closed ones, “will suffer... while the third quarter financial results will be harsher and more difficult than previous results.”
He pointed out that the matter was not limited to real estate funds only, but will affect companies that have high financing loans, which will impact their profit margins in the next third and fourth quarters of the year.
For his part, Financial Advisor Mohammad bin Freihan told Asharq Al-Awsat that the high costs of administrative expenses and commissions for financing loans, as a result of the high interest rates, have greatly contributed to the decline in the profitability of real estate funds.
He added that the drop of financial results forced some companies to exit the market due to their inability to adapt to the high operating costs and the increasing losses they incurred over the last period.
Real estate investment funds (REITs) traded in the Saudi financial market aim to facilitate investment in the developed and ready-to-use real estate sector that generates periodic and rental income, according to the Tadawul website.
The first fund was listed on the Saudi Stock Exchange at the end of 2016.
The number of REITs currently listed in the Saudi market has reached 18, while their total cash distribution from the beginning of 2017 to the end of 2022 amounted to about SAR 4.62 billion, and their net assets at the end of the first half of this year reached around SAR 17.17 billion.
