Real Estate Investment Trusts (REITs): Their Nature, Their Trading Ruling, and Their Zakat

This study examines real Estate Investment Trusts (REITs) in the Kingdom of Saudi Arabia, which are offered through public subscription and whose units are traded on the capital market, This method of offering and trading distinguishes them in certain respects from non-traded investment funds, thereby warranting a dedicated study. The research aims to clarify the legal characterization of these traded funds based on their underlying assets, as well as the rulings regarding their public offering, trading, and Zakat. The research employs an analytical methodology, relying on the analysis of specific elements to derive conclusions, and is grounded in interpretation and deduction. The paper includes an introduction about defining investment funds and their types, followed by two main sections: The first: the trading of REIT units-its nature and legal ruling. The second: discusses the ruling on their zakat. The study concludes that the true nature of listed funds lies in the securitization of fund units for the purpose of trading, which is permissible subject to Shariah regulations. The ruling on trading fund units in the capital market is permissibility, provided that the assets represented by the units consist of income-generating leased real estate -constituting at least 75% of the fund’s assets- and that such properties are leased for permissible activities. The zakat ruling depends on the intention of the unit holder, If the units are acquired for trading purposes, they are subject to zakat as trade goods, by paying 2.5% of their market value upon the completion of a lunar year. If they are acquired for holding and investment, the zakat ruling varies according to the composition of the unit’s assets, so The portion representing developed, income-generating real estate is not subject to zakat on the asset itself; rather, zakat is due on its returns after one lunar year from receipt. The portion representing usufruct rights is subject to zakat based on its market value at the completion of the lunar year. As for assets representing developed or under-development real estate, they are subject to zakat as trade goods.