Saudi Arabia's market regulator said it had approved rules governing the listing of real estate investment trusts (REITs), funds which could open the door to greater foreign investment in the kingdom's building sector.

The Capital Market Authority (CMA) said it would only accept property appraisals by members of the Saudi Authority for Accredited Valuers (Taqeem), which is launching a licensing system for real estate valuation in the kingdom.

The trusts are securities which trade on stock markets but invest directly in properties and distribute profits as dividends.

They are common investment tools in many markets, but are new to the Middle East, with Emirates REIT becoming the region's first in April 2014.

Eskan Bank also announced plans to list a REIT on Bahrain's bourse in July.

The approval by the market regulator, announced on state news agency SPA, comes after sources told Reuters in May that it was studying plans to introduce listing rules for REITs.

REITs would offer tax benefits, especially for foreign investors who currently have to pay a 20 per cent tax on all profits generated in the kingdom, as well as a 5 percent withholding tax when repatriating dividends, one of the sources said at the time.

They could also help alleviating the kingdom's chronic housing shortage by providing a new source of funding to developers who traditionally rely on bank loans for projects.-Reuters