Investing in UK long income assets across various sectors has become an attractive option for investors, especially for those in the Gulf Cooperation Council (GCC) region.
Capitalizing on this opportunity, Rasmala Investment Bank, based in Dubai, has launched the Rasmala Long Income Fund, a Sharia-compliant investment vehicle targeting the UK multifamily market, alongside its portfolio of real estate funds.
In this article, we will delve into the details of the fund’s success, its investment strategies, and the current trends in the UK property market.
This article should not be taken as a recommendation or professional investment advice. We advise you to seek out the expertise of a financial advisor who is familiar with your objectives if you want further in-depth guidance.
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Table of Contents
What is Rasmala Investment Bank?
Rasmala Investment Bank Limited is an independent provider and manager of alternative investment solutions primarily catering to investors in the Gulf region, including pension funds, family offices, corporations, endowments, and financial institutions.
Rasmala claims to prioritize long-term performance over short-term gains, and believe its approach is well suited for smart investors who view long-term goals.
The investment bank’s robust financial resources allow it to underwrite and secure lucrative transactions, and its access to alternative assets provides investors with diversification opportunities.
The company was established in the Gulf region, but its investment focus and business ethos have always been global. Its staff has extensive background in the business as well as international experience.
In May 2023, Rasmala Investment Bank announced the commencement of a UK multifamily strategy over the next five years with the goal of building a portfolio of residential properties in the UK with an investment value in excess of USD 2 billion.
Using a Shariah-compliant investment vehicle, the approach aims to enter the UK multifamily market, with an initial concentration on the serviced apartment and build-to-rent (BTR) sectors in and around London.
The Rasmala Group has invested in it, and it is poised to make several more investments over the next year and a half.
Red Apartments Limited (RAL), a market leader in the management of almost 500 residential units in and around London, is another asset that contributes to the strategy’s success.
The management team at RAL has worked in the serviced apartment industry for over 25 years.
Eric Swats, CFA, Chief Executive Officer at Rasmala, said: “Our UK multifamily strategy builds on Rasmala’s track record of matching GCC investors with real estate opportunities in the UK. Our seed investment including RAL reflects our commitment to being the partner of choice in the UK living sector, beginning with the serviced apartment and build-to-rent (BTR) sub-sectors.”
Dominic Sherry, Chief Executive Officer at RAL, added: “A new generation of renters are delaying moving onto the property ladder due to affordability concerns. We see considerable opportunity to grow our build-to-rent brand as a complement to our serviced apartment brand.”
Rasmala’s multifamily investing expertise in the UK, Europe, and North America serves as the foundation for the company’s multifamily investment strategy in the UK.
What should you know about the Rasmala UK property funds?
Rasmala Investment Bank, based in Dubai, has recently launched the Rasmala Long Income Fund, a Sharia-compliant investment vehicle targeting the UK multifamily market.
The Rasmala Long Income Fund has experienced a remarkable response from investors since its launch in March 2019.
Within just three months, the fund has amassed over $70 million in assets under management, with more capital waiting to be invested. The fund primarily focuses on UK long income assets, including residential and commercial ground rents, commercial long leases, and social long leases.
Co-managed by Ruggiero Lomonaco and Naseer Aka, the Rasmala Long Income Fund leverages the expertise of Nigel Ashfield, Roger Skelton, and Stephen Daniels of Time Investments to manage the underlying property portfolio.
With a strong emphasis on capital preservation and portfolio diversification, the fund aims to provide investors with a stable income stream and potentially attractive capital values.
While the fund initially had a significant exposure to UK residential and social sectors, the recent inflow of subscriptions during March has prompted a shift towards commercial ground rents and commercial long leases.
The limited supply of residential ground rents, coupled with impending regulatory changes and a shortage of new homes in the UK, has made it challenging to deploy capital in this sector.
However, there are exciting opportunities in alternative sectors such as healthcare and hotels.
These sectors offer assets with long leases and strong covenants, making them attractive investment prospects. In particular, care homes present numerous opportunities due to the ongoing rationalization of government funding for the healthcare sector.
Both long leases and ground rents offer stable and secure long-term income, often with inflation indexation or fixed upward escalation.
According to Rasmala, over the past 15 years, the capital values of long income properties have proven exceptionally stable, providing a valid alternative to fixed income and equities.
Ground rents, which are preferred by Rasmala, offer additional benefits due to their overcollateralization relative to the investment amount.
However, these assets are limited in availability, and acquiring commercial ground leases often requires bilateral negotiations with existing property owners and occupiers.
Rasmala believes that when considering long leases, it is crucial to assess the strength of the covenant and the strategic importance of the asset for its user.
Profit-generating properties, such as fitness centers, are preferred over those that primarily function as administrative hubs. Understanding the user’s perspective and the asset’s significance plays a crucial role in making informed investment decisions.
In addition to the Rasmala Long Income Fund, Rasmala Investment Bank has launched the aforementioned $2 billion, five-year strategy to create a portfolio of residential properties in the UK.
This strategy specifically targets the UK multifamily market, with a primary focus on serviced apartments and build-to-rent subsectors in and around London.
Seeded by the Rasmala Group, this strategy encompasses two residential blocks and includes a controlling stake in Red Apartments Limited, which manages nearly 500 residential units in and around London.
The goal of this initiative is to cater to the growing interest from GCC investors in UK residential properties.
The UK has long been on the radar of property investors from the Middle East, and recent developments have further fueled this interest. The rise in borrowing costs in the UK has made property purchases more favorable for cash buyers, attracting investors from the GCC region.
According to a report by Knight Frank, the number of buyers from the Middle East acquiring property in central London reached a four-year high in the second half of 2022.
“Compared to some parts of the world, buyers from the Middle East have been relatively free to travel to London and take advantage of the weak pound, which has resulted in discounts of more than 40 per cent compared to 2014 when price and currency movements are combined,” Tom Bill, head of UK residential research at Knight Frank, was reported as saying.
“The long-term appeal of London appears undiminished by the pandemic.”
These investors were involved in more than one in ten property transactions in London’s prestigious districts, indicating their significant presence in the market.
Factors such as relaxed international travel rules and the weak pound have contributed to increased interest in London property among Middle Eastern buyers.
Compared to 2014, when considering price and currency movements, discounts of over 40% have been observed, further enticing buyers from the region.
Tenant demand in the UK has seen a recent surge, reaching a five-month high according to the Royal Institution of Chartered Surveyors. With a decreasing number of new landlords, the demand and supply imbalance may lead to higher rents in the country.
The Royal Institution of Chartered Surveyors reported that 59% of surveyors expected rents to rise in the next three months, indicating a positive outlook for rental income. This trend presents an opportunity for Rasmala to grow its build-to-rent brand as a complement to its serviced apartment brand.
Should you invest in Rasmala UK property funds?
Rasmala Investment Bank, established in 1999, has a long-standing track record of successful real estate investments in the UK, Europe, and the US.
The bank collaborates with Gulf-based institutional investors, including banks, pension funds, endowments, family offices, corporations, and government institutions, to invest directly in various alternative assets.
The new UK multifamily strategy is a testament to Rasmala’s commitment to leveraging its real estate investment experience and catering to the evolving needs of investors.
By capitalizing on the growing interest in UK long income assets and the strong demand for rental properties, Rasmala aims to provide attractive investment opportunities for its clients.
The Rasmala Long Income Fund and the $2 billion UK multifamily strategy demonstrate Rasmala Investment Bank’s dedication to capitalizing on the potential of UK long income assets.
With a focus on residential, commercial, and social sectors, the fund has attracted significant investor interest and reached impressive asset levels within a short period.
As the UK property market continues to evolve, Rasmala’s expertise and strategic approach position it well to navigate emerging trends and provide attractive investment opportunities for its clients.
However, given the current data and market trends, it will be difficult to judge how such efforts will pan out. We recommend consulting with a professional financial advisor should you be interested in investing in UK real estate.
Why should you invest in real estate funds?
With the ever-growing demand for housing and commercial properties, real estate has proven to be a solid and resilient asset class.
Real estate funds, in particular, provide a unique opportunity to diversify your investment portfolio and tap into a market that is known for its long-term wealth-building potential.
By pooling funds from multiple investors, real estate funds allow you to access a wide range of properties, from residential to commercial, without the hassle of managing them yourself.
What are real estate funds?
To invest in a wide variety of properties, real estate funds pool the capital of many different people.
Professional investment managers with deep expertise in the real estate sector oversee these holdings. Residential, commercial, and industrial properties are just some of the options available to real estate investment trusts.
The funds might specialize in investing in either a particular area or type of real estate. By purchasing shares in a real estate investment trust, private investors can acquire exposure to a wider range of properties than they would be able to purchase directly.
Mutual funds and real estate investment trusts (REITs) are two examples of real estate funds.
Unlike real estate mutual funds, which are managed investment pools, real estate investment trusts (REITs) are publicly listed businesses that own and run income-generating real estate properties.
Both types of funds give those interested in real estate the chance to invest in the market without having to commit a lot of money or learn a lot of complicated details.
There are a number of advantages to investing in real estate funds that make doing so appealing.
REITs vs. real estate funds
Like the stock market, a real estate investment trust (REIT) invests in income-producing properties on behalf of its shareholders.
To invest largely in securities issued by publicly traded real estate businesses is the primary emphasis of a real estate fund, a specific category of mutual fund. While both can be used to spread risk throughout a portfolio, it is important to understand their distinctions.
There are certain structural similarities between a REIT and a mutual fund, both of which pool investor funds to purchase a portfolio of commercial real estate and distribute income to their shareholders. Each year, a REIT must pay out dividends to its shareholders equal to at least 90% of its taxable income.
Individuals no longer need to take on the responsibilities of property ownership, management, or financing in order to profit from real estate investments.
There are three distinct types of real estate investment trusts.
- Income-producing properties are owned and managed by equity REITs.
- Mortgage REITs provide financing for property owners and managers through mortgages, loans, and the purchase of mortgage-backed securities.
- Mortgage REITs and Equity REITs are brought together in hybrid REITs.
Equity REITs’ primary source of income is rental income from real estate, while mortgage REITs’ primary source of income is interest on mortgage loans.
Apartment buildings, data centers, healthcare facilities, hotels, infrastructure, office buildings, retail centers, self-storage facilities, timberland, and warehouses are all examples of real estate that can be found in a REIt is portfolio.
Real estate mutual funds, like traditional mutual funds, can be managed in two ways: actively and passively. Passively managed investments often mimic the results of a benchmark index.
For instance, the Vanguard Real Estate Index Fund (VGSLX) follows the MSCI US Investable Market Real Estate 25/50 Index and invests in REITs that purchase office buildings, hotels, and other properties.
There are primarily three categories of real estate investment funds:
- The stocks of real estate companies and real estate investment trusts (REITs) are held via real estate exchange-traded funds (ETFs). These ETFs trade on major markets just like equities.
- Open- and closed-end, actively and passively managed real estate mutual funds are all viable options.
- Professionally managed private real estate investment funds invest solely in real estate. Only accredited, high-net-worth investors can participate, and the required minimum commitment is usually rather substantial.
Some real estate funds invest directly in properties, while others focus on real estate investment trusts (REITs) and real estate operating companies (REOCs).
Unlike real estate investment trusts (REITs), real estate funds typically do not generate income for investors in the short term. Although owning individual REITs might provide diversity, real estate funds can provide access to a far wider range of assets.
The following are the primary dissimilarities between REITs and real estate funds:
- Direct property investments are made through real estate investment trusts (REITs), which may also manage or finance income-producing properties. Real estate investment trusts (REITs) and real estate-related stocks are examples of common investments.
- Like stocks, real estate investment trusts (REITs) see their prices go up and down as the trading day unfolds on major exchanges. Most real estate investment trusts (REITs) are actively traded and have strong liquidity. When compared to the stock market, real estate funds only rebalance their holdings once every day. You can invest in a real estate fund directly from the company that created it, or you can use an online brokerage.
- The majority of a REIT is taxable income is distributed to shareholders as dividends.
Value in real estate funds is generated through growth, so they might not be the best option if you are looking for a steady stream of passive income or a quick buck.
In contrast to capital gains, dividends from REITs are guaranteed, thus investing in them can be a reliable source of income.
Therefore, they are more suited for investors seeking a steady stream of income. Mutual funds that focus on real estate may be a better option for long-term investors seeking appreciation and who want exposure to the real estate market.
What are the benefits of investing in real estate funds?
Diversification
One of the key benefits of investing in real estate funds is the ability to diversify your investment portfolio.
Real estate funds typically invest in a wide range of properties, which helps spread the risk across different asset classes and geographies.
This diversification can help reduce the impact of any individual property’s performance on your overall investment returns.
By investing in real estate funds, you can gain exposure to different types of properties, such as residential, commercial, or industrial, which may have varying levels of risk and return potential.
Professional management
Real estate funds are managed by professional investment managers who have a deep understanding of the real estate market.
These managers have the expertise and experience to identify attractive investment opportunities and manage the properties within the fund’s portfolio.
They conduct thorough due diligence, assess market trends, and make informed investment decisions on behalf of the fund’s investors.
Investing in real estate funds puts you as a beneficiary of the expertise of these professionals, who actively manage the portfolio and aim to maximize returns while minimizing risks.
Access to institutional-grade properties
Investing in real estate funds allows individual investors to gain access to institutional-grade properties that may not be available to them otherwise.
These properties are typically larger and more valuable, offering the potential for higher rental income and capital appreciation.
Multiple investors like you can pool funds and create real estate funds that can acquire properties that may be beyond the reach of individual investors alone.
This access to institutional-grade properties allows investors to benefit from the professional management and potential returns associated with such properties.
Passive income and capital appreciation
Real estate funds provide investors with the opportunity to earn passive income and benefit from capital appreciation. Rental income generated from the properties within the fund’s portfolio is distributed to the investors in the form of dividends.
This regular income stream can provide stable cash flow and potentially serve as a source of passive income. In addition to rental income, real estate funds also offer the potential for capital appreciation.
As the value of the properties within the fund’s portfolio increases over time, the investors can benefit from the appreciation in property prices when they sell their units in the fund.
Liquidity
Investing in real estate directly can be a relatively illiquid investment, as it may take time to sell a property and convert it into cash.
Real estate funds, on the other hand, offer a higher level of liquidity. Most real estate funds are traded on stock exchanges, allowing investors to buy or sell their units at any time during market hours.
This liquidity provides investors with the flexibility to adjust their investment holdings as per their financial goals and market conditions.
Real estate funds offer several benefits that make them an attractive investment option for individuals looking to diversify their portfolios and tap into the potential of the real estate market.
However, it is essential to consider the current real estate market trends and statistics before making an investment decision.
What should you know before investing in real estate funds?
Before investing in real estate funds, it is crucial to have a good understanding of the current real estate market trends and statistics. These trends can provide valuable insights into the market conditions and help you make informed investment decisions.
Demand and supply dynamics
The demand for housing and commercial properties is influenced by various factors, such as population growth, economic conditions, and demographic trends.
Understanding the demand and supply dynamics in the real estate market can help you assess the potential for rental income and capital appreciation.
For example, if there is a high demand for residential properties in a particular location, it could indicate a favorable market for investing in real estate funds that focus on residential properties in that area.
Rental yields
Rental yield is a measure of the rental income generated from a property relative to its value. It is an essential indicator of the potential returns from investing in real estate.
Higher rental yields indicate a property’s ability to generate income, which can contribute to the overall returns of a real estate fund. Analyzing rental yields in different locations and property types can help you identify areas with attractive investment opportunities.
Property prices and appreciation
Property prices and their potential for appreciation are significant factors to consider when investing in real estate funds.
Historical data on property prices in different locations can provide insights into the potential for capital appreciation. Analyzing price trends over time can help you assess the market’s growth potential and make informed investment decisions.
Economic indicators
The development of the economy as a whole can have a major bearing on the real estate market.
Prices, rental income, and demand for real estate can all be affected by macroeconomic variables including GDP growth, employment rates, interest rates, and inflation.
You may evaluate the risks and potential returns of investing in real estate funds by analyzing economic indicators, which provide insight into the situation of the market.
By staying updated on real estate market trends and statistics, you can make more informed investment decisions and maximize your chances of achieving your financial goals.
Different types of real estate funds
We touched on these briefly before, but real estate funds come in various forms, each with its own investment strategy and focus. Understanding the different types of real estate funds can help you choose the one that aligns with your investment objectives.
Real estate investment trusts (REITs)
As mentioned above, REITs, or real estate investment trusts, are corporations that are traded on public exchanges and whose primary business is the management of real estate assets that generate revenue.
Commercial, industrial, and even mixed-use properties are all fair game for real estate investment trusts.
In most jurisdictions, REITs must pay out a sizable amount of their taxable revenue to their shareholders every year in the form of dividends. By purchasing shares in a real estate investment trust (REIT), investors can obtain access to a diversified portfolio of properties while also receiving dividend payments on a consistent basis.
Real estate mutual funds
Investing in real estate is the focus of real estate mutual funds. These funds take in money from numerous investors and then spread it out across various real estate holdings.
Real estate mutual funds can focus on specific geographies or sectors within the real estate market. They may invest in properties such as residential buildings, commercial complexes, retail spaces, or a combination of these.
Essentially, investing in real estate mutual funds gets you access to a professionally managed portfolio of real estate assets.
Exchange-traded funds (ETFs)
Real estate exchange-traded funds, or ETFs, are investment funds that trade on stock exchanges. These funds are designed to track the performance of a specific real estate index or a basket of real estate securities.
Real estate ETFs allow investors to gain exposure to the real estate market as a whole or specific segments of the market, such as residential or commercial properties. Real estate ETFs offer you the benefit from the diversification and liquidity offered by these funds.
Private real estate funds
Private real estate funds are investment vehicles that pool money from accredited investors to invest in real estate properties.
These funds are typically managed by private equity firms or real estate investment firms. Private real estate funds may focus on specific types of properties, such as commercial or residential, or target specific markets or regions.
Investing in private real estate funds can provide access to exclusive investment opportunities and potentially higher returns, but they often require higher minimum investments and have longer lock-up periods compared to publicly traded real estate funds.
Understanding the different types of real estate funds can help you choose the one that suits your investment goals, risk tolerance, and capital requirements.
If you need more guidance, we recommend you seek the services of a personal financial advisor who can explain all the intricacies of such investments.
How do you get started with investing in real estate funds?
Investing in real estate funds is relatively straightforward, and there are several ways to get started. Here are some common methods for investing in real estate funds:
Direct investment
One way to invest in real estate funds is through direct investment with the fund manager. You can directly contact the fund manager or visit their website to find information about their funds and the investment process.
The fund manager will provide you with the necessary documentation and guidance to invest in the fund. Direct investment allows you to have a direct relationship with the fund manager and potentially negotiate better terms.
Brokerage platforms
Many brokerage platforms offer access to real estate funds, allowing you to invest in them through your brokerage account.
These platforms provide a convenient way to invest in real estate funds, as you can manage your investments alongside other investment products. You can research different funds, compare their performance and fees, and make investment decisions through the platform’s interface.
Financial advisors
Working with a financial advisor can be an excellent option if you prefer professional guidance throughout the investment process.
A financial advisor can help you assess your investment needs, evaluate different real estate funds, and make suitable investment recommendations based on your financial goals and risk tolerance.
They can also provide ongoing monitoring and advice to ensure your investments align with your evolving needs.
Always keep in mind that when investing in real estate funds, it is crucial to consider the risks and potential drawbacks associated with these investments.
What are these risks and considerations?
Market risk
The real estate industry, like any other investment market, is susceptible to ups and downs. Property values and rental revenue are sensitive to macroeconomic conditions, interest rates, and supply and demand.
Therefore, there is a possibility of losing money while investing in a real estate fund. Before putting your money into a real estate investment fund, you should do extensive homework on the industry and its trends and data.
Liquidity risk
While real estate funds offer a higher level of liquidity compared to direct real estate investment, they may still have liquidity limitations.
Some funds may have restrictions on selling units or redeeming your investment within a specified period.
It is crucial to understand the fund’s liquidity terms and consider your investment horizon and liquidity needs before investing.
Management risk
A real estate fund’s success is highly dependent on the knowledge, expertise, and judgment of its manager.
The performance and returns of a fund might be significantly affected if its manager is inexperienced or makes unwise investing decisions. Before investing in a real estate fund, it is crucial to assess the performance history and standing of the fund management.
Regulatory risk
Real estate funds are subject to regulatory oversight and compliance requirements. Changes in regulations or tax laws can impact the fund’s operations and returns. It is crucial to stay updated on regulatory changes and their potential implications for real estate funds.
Fees and expenses
Real estate funds typically charge management fees and other expenses, such as administrative fees and performance fees.
These fees can vary significantly among different funds and can impact your overall investment returns. It is essential to carefully review the fund’s fee structure and consider the potential impact on your returns before investing.
Despite these risks and considerations, real estate funds have demonstrated the potential for attractive returns over the long term.
Real estate fund performance and returns
Historically, real estate has been a resilient asset class that has provided attractive returns over the long term.
Real estate funds, by diversifying investments across different properties and markets, have the potential to generate steady income and capital appreciation. The performance of real estate funds can be measured through metrics such as total return, annualized return, and dividend yield.
Total return measures the combined return from both rental income and capital appreciation. It provides a comprehensive view of the fund’s performance over a specific period.
Annualized return calculates the average annual return from an investment over a given period, allowing for easier comparison across different investment options.
Dividend yield measures the percentage of a fund’s annual dividend payment relative to its share price. It indicates the income generated by the fund’s properties relative to the investment amount.
When evaluating real estate fund performance and returns, it is necessary to be able to see your own investment horizon, risk tolerance, and investment goals. Real estate funds are generally considered long-term investments, and their performance should be assessed accordingly.
Real estate fund management and fees
Real estate funds are managed by professional investment managers who have expertise in the real estate market.
These managers are responsible for identifying attractive investment opportunities, managing the properties within the fund’s portfolio, and maximizing returns while minimizing risks.
The fund manager’s experience, track record, and investment strategy are critical factors to consider when choosing a real estate fund.
Real estate funds charge management fees and other expenses as well, which can vary significantly among different funds. Management fees are typically calculated as a percentage of the fund’s assets under management.
Other expenses may include administrative fees, performance fees, and fund-related expenses. It is essential to carefully review the fund’s fee structure and consider the potential impact on your investment returns.
Before investing in a real estate fund, it is crucial to thoroughly research and evaluate the fund manager’s track record, reputation, and investment strategy. Understanding the fund’s management and fees can help you make an informed investment decision.
Is investing in real estate funds like Rasmala UK property funds right for you?
Investing in real estate funds can be an excellent option for individuals looking to diversify their investment portfolios and tap into the potential of the real estate market.
Real estate funds offer several benefits, including diversification, professional management, access to institutional-grade properties, passive income, and liquidity.
For instance, the decision to invest in Rasmala UK property funds should be carefully considered based on several factors. While the funds have shown promising returns in the past and offer exposure to the UK property market, there are also potential risks and uncertainties to be aware of.
Rasmala argues that their approach is best suited for astute investors who evaluate the big picture rather than looking for quick wins.
The investment bank’s deep pockets make it possible for it to underwrite and close lucrative deals, and its access to alternative assets gives its clients a chance to diversify their portfolios.
It is important to assess the fund’s past returns and performance, for one. Additionally, investors should consider the fund’s exposure to the UK property market and evaluate the potential risks and uncertainties associated with it.
Conducting thorough research and analysis is crucial to making an informed decision. Assessing one’s risk tolerance and investment goals is also essential in determining the suitability of Rasmala UK property funds.
It is crucial for investors to conduct thorough research, assess their risk tolerance, and consult with financial advisors before making any investment decisions.
Seeking advice from financial advisors can provide valuable insights and guidance in making investment decisions.
Ultimately, the suitability of Rasmala UK property funds as an investment option will depend on individual circumstances and investment goals.
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