Global launches MENA Real Estate Ijarah Fund

Mr. Sameer AlGharaballi, Executive Vice President at Global, said that the new fund has two unique elements that are considered pillars in current economic prosperity in the MENA region; investment in real estate and Islamic Shari'a financing tools.

He added that the MENA Real Estate Ijarah Fund seeks competitive returns and capital preservation by utilizing the sophisticated Ijarah Structure.

"Global believes that real estate investments remain the workhorse of economic growth despite periodic market fluctuations and downturns, and the recent US real estate crises."

"The sentiment towards the sector in the region remains strong and healthy," he affirmed.

"Merged with the Islamic financing concept of Ijarah and Global's vast experience in fund management, the new fund is geared to fulfill its investment objectives of providing investors with stable and relatively secure returns."

Rental yields continue to be in excess of 8% in the GCC which is much higher than the 3-6% they yield in the UK, Europe and Hong Kong, AlGharaballi noted.

The fund size is set at $300m and will invest its capital in various types of real estate properties (commercial, residential and industrial) in the MENA region. The expected cash yield is approximately 8% to 10% which will be distributed on a quarterly basis. Al-Rayah International Consulting and Training will act as the fund's Shari'a consultant.

The growth of real estate in the GCC is ever expanding as its GDP is higher than those of other regions. The size of real estate funds invested in the GCC increased to $55bn in 2005 up from $22bn in 2004.

Speaking about the MENA Real Estate Fund investment strategy, Mr. Fawaz AlBader, Real Estate Senior Manager-Investment Funds at Global, said that in implementing the Ijarah structure, the Fund generally anticipates that it will provide financing by purchasing such assets and maintaining full ownership throughout the Ijarah period.

"Subsequently, the Fund will then lease the assets in exchange for an advance Ijarah payment equal to approximately 30% of the property value."

By requiring the advance rental payment, the Fund will have reduced its initial exposure with regard to any particular asset to approximately 70% of the value of that asset maintaining a coverage ratio of approximately 140% with respect to the investment made by the Fund in connection with that asset, he added.

"At the end of the Ijarah term, the Ijarah will end with a "Promise to Buy" which is equivalent to a Buy-Back-Guarantee, which means that the asset would typically be sold to the Lessee for a purchase price equal to the Fund's investment minus any Ijarah rental payment received during the Ijarah tenor," AlBader followed.

He explained that leading capital sources and Fund Managers from the Middle-East are working on reallocating their real estate investments to reduce focus on the US, region and limit new investments in Europe, this is due to increasing interest in Asian markets and the MENA.

AlBader ended by saying that the fund is eyeing potential deals and investments in Bahrain, Kuwait, Egypt, Tunis, and Morocco.