In matters of real estate, Nigeria lags behind generally when compared with other economies, including emerging economies, where markets are mature, investments are high and coordinated, and both macro-economic and regulatory environments are enabling and supportive .
Besides coming last among its peers in ease of registering property, Nigeria also lags in the Real Estate Investment Trusts (REITs) business, especially in the level of investment, market capitalization and return on investment in that class of assets.
Globally, REITs are similar in characteristics and these, according to Stanbic IBTC Capital Limited (SICL), include portfolio of quality income-producing assets, tax efficient investment vehicle, assets with stabilized cash-flows, liquidity via stock exchange trading, deep investor pool , and strong regulation and market transparency.
Though REITs started in 2007 in Nigeria, about six years before it started in South Africa in 2013, and about five years after it started in Singapore in 2002, there is no justification for the wide difference between the number of REITs in those countries and what obtains in Nigeria, the largest economy in Africa.
Whereas Singapore has 37 REITs and South Africa has 29, Nigeria has only three REITs. US where it started in 1960 has 224 REITs while UK has 37.
In terms of market capitalization, SICL in a paper it presented at Summit 2.0, a business conference organised by the Lagos State Branch of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), noted that as against US $1,000 billion, UK’s $73 billion, Singapore’s $34 billion, and South Africa’s $19 billion, Nigeria has a very insignificant $0.2 billion.
Return on investment in REITs in Nigeria is also far below what comes back to investors in this instrument in other economies. Despite its large-size market, return on investment in REITs in Nigeria is 7 percent as against 16 percent in Singapore, 15 percent in South Africa and 9 percent in Kenya.
Nigeria’s back seat position in this market finds explanation easily in issues that are fundamentally wrong in the attempts to growth the market. There have, however, been vigorous attempts to grow this market as could be seen in the modest ₦2 billion Skye Shelter Fund floated in 2007.
Others are Union Homes and Sun Trust which followed with ₦12 billion and ₦20 billion offerings respectively. UAC Property Development Company’s (UPDC’s) 2013 offering of ₦30 billion which declined to market cap of ₦26.7 billion in May 2017 is the largest and most successful offering so far.
“There are, evidently, issues regarding the quality of assets available and concerns around the tax implications, amongst others”, says Ayo Ibaru, Director, Real Estate at Northcourt, suggesting that to reach performance levels of national economic significance, adjustments need to be made.
SICL agrees, adding that there is need to grow investor-confidence by ncreasing level of local investor familiarization with the real estate asset class; Standardising practice to increase institutional foreign portfolio investor pool.
There is also need for market transparency which would involve increasing access to market information to both retail and institutional investors; improving visibility and transparency of financial reporting and tracking asset performance metrics.
Regulatory policies have to be enhanced by regularly updating regulation in line with global best practice and ensuring favourable tax regime to attract more capital to the sector.
SICL pointed out that estate surveyors and valuers have a role to play in growing this market which, it noted, has great potential and opportunities for them. “Valuers should be involved in embracing and establishing internationally acceptable valuation standards; recognising and enforcing the importance of valuation standards in successful real estate/REITs creation”, it advised.
Valuers should be able to attracts investors by establishing sustainable investor confidence and continually attracting new class of investors. There should be transparency such that valuations would be carried out in a detailed manner providing evidence, clear rationale and workings; valuation and data benchmarks will be established, among other roles.
The opportunities for valuers in this market is quite encouraging. An estimated $2.0 to 2.5 billion was deployed to the Nigerian commercial real estate sector over the last 10 years while N54 –N72 billion is the estimated value of asset portfolio required for REIT creation in Nigeria.
“These could more than double easily in the next 5-10 years”, SICL posited, adding that a typical REITs listing requires a portfolio of income-producing assets worth over N54 billion ($150 million) to N72 billion ($200 million). An established secondary market will catalyze investments in the primary markets while a bulk of the institutional capital for large scale commercial real estate development is from foreign institutional investors.
The company believes that aligning the Nigerian regulatory environment to global standards would increase investor confidence and deepen the capital pool, hoping that upcoming enhancement to the REITs regulation would increase the activities in the REIT market and increase the demand for valuation services.
