The Real Estate Investment Trusts (REITs) market in Nigeria is still growing slowlym despite a significant increase in the global market capitalisation which an Ernest & Young report puts at approximately US$1.7 trillion, up from US$734 billion in 2010.
There have however been 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 capitalisation of ₦26.7 billion in a May 2017 is the largest and most successful offering so far.
The most recent one in the market is the Top Services Limited (TSL) ₦20 billion REIT, which is yet to be listed on the stock market. Apart from the UPDC’s, none of these REITs has had an impressive showing in the market, a situation which experts blame on unfavaourable taxation, regulatory policies and poor corporate governance.
“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.
In the developed economies of the world, especially in the US, where it started in 1960, the REITs market has grown by almost 150 percent, while the market capitalisation of non-US REITs has more than doubled. Oscar Onyema, CEO, Nigerian Stock Exchange (NSE) says the two fastest-growing markets in the last five years are Australia and Japan, both of which have now overtaken France and the UK to be the second- and third-largest global REITs markets respectively.
“In Africa, the market has not done so well, though not without encouraging stories. The African REITs market is presently valued at US$29 billion and is available in four countries, including Ghana, Nigeria, South Africa and Kenya”, Onyema disclosed at a forum on REITs market in Lagos.
He further said, “there are only 32 REITs in Africa, with South Africa being the largest market, having 27 REITs and Nigeria second with three REITs listed. In 2015, an estimated $265 million worth of transactions were concluded in Kenya, Nigeria and Ghana, a big improvement on the $65 million seen in the three markets during 2012; this indicates an increasing market, as a larger number of investors are beginning to take increased interest and participation in the real estate sector”.
He pointed out that as an investment instrument that owns and manages portfolio of income-generating real estate, REITs comes with attractive benefits that include higher dividend, secured income by long leases, inflation protection, portfolio diversification, high liquidity, etc.
But investors don’t readily move cash to that market, resulting in its slow growth ten years after the first REIT was floated by Sky Shelter Fund. “For REITs to do well or succeed in Nigeria, we need to promote a bill that will put the right tax structure into the REIT vehicle, such that investors will be comfortable with its operations. That has to be voted for and passed at the National Assembly”, affirmed Tolu Sokenu, a Principal at Actis, who noted that in most markets, REITs mostly thrive with residential real estate because if a tenant defaults on his rent payment, the law is there to kick him out of your house, but in Nigeria, it is not so.
“This is because you don’t have the enabling law; it is very difficult for a landlord to enforce his right over a tenant. What this does is to disincentivise investment in real estate. The REITs is one huge portion of the economy that is not being addressed by the government in this country”, he added.
Lack of transparency, low foreign capital inflow, the Land Use Act, etc have also been identified as potential obstacles to the growth of this market, bringing about the need, according to Abimbola Ogunbanjo, First Vice President of the NSE, for the establishment of a separate land registry that should deal with all issues related to REITs .
“The regulatory issues by the Securities and Exchange Commission (SEC) and NSE should be harmonised”, Taiwo Ogundele, Partner at PwC West Africa Tax Leader suggested, advising that government should do what is expected of it with right policies and leave the private sector to drive and grow the market.
CHUKA UROKO
