Investment Terminology Glossary
Cap Rate (Capitalization Rate): Net operating income divided by property value. The primary yield metric for real estate investment. Saudi tokenized RE cap rates range from 5.5% (premium residential) to 10%+ (workforce housing). See yield analysis.
Core Investment: Low-risk, stable-income real estate investment in established properties with high-quality tenants. In Saudi tokenized RE: completed Roshn communities, KAFD office space, and Makkah hospitality.
Core-Plus Investment: Core properties with value enhancement potential — light renovation, lease optimization, or repositioning. Moderate risk uplift for 100-200 basis points of additional yield.
Diminishing Musharakah: Shariah-compliant co-ownership structure where one partner gradually purchases the other’s share. Used in Saudi tokenized real estate for development-phase offerings where the developer and investors co-own the asset, with the developer buying out investor positions over time.
Gross Yield: Total rental income divided by property value, before deducting management fees, maintenance, vacancy, and platform costs. Saudi gross yields range from 5.5-12% depending on asset type and location.
Ijarah: Islamic lease contract used as a Shariah-compliant real estate tokenization structure. The SPV purchases property and leases it to tenants; token holders receive lease income proportional to their ownership. The most common structure for income-producing tokenized Saudi RE.
Liquidity Discount: The reduction in price an investor accepts for selling an illiquid asset quickly. Current Saudi tokenized RE liquidity discounts are estimated at 5-15% of NAV, expected to narrow as secondary markets develop.
Murabaha: Cost-plus financing structure used in Saudi mortgages. The bank purchases the property and sells it to the buyer at cost plus an agreed profit margin, paid in installments. The profit margin functions economically like interest but is structured to comply with Shariah requirements.
Net Operating Income (NOI): Gross rental income minus operating expenses (management, maintenance, insurance, property tax equivalents). NOI divided by property value equals the cap rate.
Net Yield: Rental income after all deductions (property management, platform fees, maintenance reserve, vacancy) divided by property value. The actual return flowing to token holders. Saudi net yields range from 4-8%.
Opportunistic Investment: High-risk, high-return real estate investment in development, repositioning, or distressed assets. In Saudi tokenized RE: pre-development NEOM positions, land adjacent to announced infrastructure, and construction-phase mega-project tokens.
Special Purpose Vehicle (SPV): A legal entity created specifically to hold tokenized real estate assets, separating property ownership from the platform operator’s business. CMA requires SPV structures for investor asset protection in tokenized offerings.
Sukuk: Islamic bonds representing ownership in an underlying asset or project. SRC issues mortgage-backed sukuk that can be tokenized for fractional investor access.
Value-Add Investment: Real estate requiring significant renovation, repositioning, or management improvement to achieve target returns. Higher risk than core/core-plus but with 200-400 basis points of additional yield potential.
Wakala: Islamic agency contract where one party (wakeel/agent) manages assets on behalf of another (muwakkil/principal) for a fee. Used in tokenized real estate for property management arrangements where the SPV appoints a professional manager as wakeel for the token holders.
Basis Points (bps): One hundredth of a percentage point (0.01%). Used to express yield differences and fee comparisons. Example: a Saudi tokenized RE yield of 6.50% versus a Dubai equivalent of 5.75% represents a 75 basis point advantage. Platform management fees of 1.5% versus 2.0% represent a 50 basis point difference.
Carried Interest: The share of investment profits paid to a fund manager (typically 20% of profits above a hurdle rate). Some tokenized real estate structures include carried interest for the platform operator as a performance incentive — creating alignment between platform profitability and token holder returns.
Debt Service Coverage Ratio (DSCR): Net operating income divided by debt service obligations. Measures a property’s ability to service its debt. SAMA requires a minimum DSCR of 1.25x for Saudi commercial real estate financing. Tokenized property offerings should disclose the DSCR to investors as a measure of financial health.
Internal Rate of Return (IRR): The annualized return rate that equates the present value of expected cash flows to the initial investment. For tokenized real estate, IRR accounts for: rental income distributions, property value appreciation, platform fees, and exit proceeds. Saudi tokenized RE target IRRs range from 8-15% depending on asset risk profile.
Istisna: Islamic manufacturing or construction finance contract where the buyer orders a product (property) to be manufactured or built, with payments linked to construction milestones. Used for tokenized off-plan real estate where token proceeds fund construction and token holders receive the completed property proportionally.
Real Estate Transaction Tax (RETT): Saudi Arabia’s 5% stamp duty on property transfers (reduced from 15% VAT in 2020). RETT applies to tokenized property transfers — the tax treatment of secondary market token trades (whether each trade constitutes a property transfer triggering RETT) is a critical regulatory question under CMA review.
Sharpe Ratio: Risk-adjusted return metric calculated as (portfolio return minus risk-free rate) divided by portfolio standard deviation. Used to compare the risk-adjusted performance of tokenized real estate portfolios against alternative investments. Saudi 91-day T-bill rates (following US Fed Funds rate due to SAR peg) serve as the risk-free rate.
Vacancy Reserve: A portion of gross rental income set aside to cover periods of tenant absence between leases. Saudi tokenized RE platforms typically reserve 5-10% of gross rent as vacancy reserve, depending on property type and market conditions. Ejar data provides neighborhood-level vacancy rates for reserve calibration.
Weighted Average Cost of Capital (WACC): The blended cost of debt and equity capital used to finance a property. For tokenized real estate, WACC determines the discount rate used in property valuations and the minimum yield required to attract investors.
See also: Saudi RE Yield Analysis | Portfolio Construction | Risk Framework | Shariah Compliance | CMA Terminology | Blockchain Standards | REGA Wafi Terminology | Vision 2030 Glossary
Updated March 19, 2026