Amid negative macro-economic indicators eroding investor-confidence in the Nigerian economy, interest in the Real Estate Investment Trusts (REITs) has grown significantly in recent times, giving the market a positive outlook of better days ahead.
Poor performing assets classes are encouraging increased patronage from yield seeking investors, more so when some investors are licking their wounds from the crash of the capital market, which by the last quarter of 2014, saw foreign investors aggressively exiting their investments.
Progressively, the REITs market has seen growth in investor-interest and patronage, culminating in the impressive outing last December, when HMK REIT began its N13.39 billion IPO which analysts say would be the second largest REIT, accounting for 25 percent of the market when listed on the stock exchange.
Earlier that year, UAC Property Development Company (UPDC) Plc had floated N26.7 billion hybrid REIT that was largely over-subscribed, accounting for about 50 percent of the entire REIT market.
Before that, were the Skye Shelter Fund and Union Homes REITs both of which had dismal outing, accounting for 4 percent and 21 percent of the market respectively.
“The growth in the Nigerian REITs market is understandable, given the crash of the capital market which provided a viable alternative investment asset class”, says Adeniyi Akinlusi, the CEO, Trustbond Mortgage Bank Plc, explaining that the value of shares was going down almost on daily basis.
Dolapo Omidire, a research analyst, agrees, pointing out that “the inherent potential in the Nigerian REIT industry, if it is gotten right, is the main attracting factor for the growing investment interest”.
There’s an attractive opportunity in capital-raising for the REIT operators, as well as a great tax advantage, and according to Omidire, the tax benefit is a result of the REITs being able to avoid a lot of taxes, as long as they pay 90 percent of their income to the shareholders.
“This way, the investors carry the tax burden as if they owned the real estate asset themselves”, he added, noting however, that “the legislation that allows these benefits has not been fully straightened out, hence we are seeing increased pressure from stakeholders towards the regulators, to make adequate reform to kick start the industry”.
Among other benefits which also contribute to the growth of this market, REIT allows retail investors to access real estate, which is an otherwise highly capital intensive asset class just as the investors also enjoy good dividends and strong portfolio diversification benefits.
The market, like anything else in an emerging economy, has its problems, one of which, Omidire says, is the availability of prime investment grade assets and the depth of the secondary real estate investment market, explaining that the primary market, though still in infancy stages, is growing.
Andrew Baum, a Cambridge University professor and thought leader on global real estate investments, shares this view, pointing out that “Africa is underweight in asset value of real estate, relative to other continents, making it an attractive prospect for investible funds in real estate”.
Buam was a guest lecturer at a Round Table organised by Stanbic IBTC Capital in partnership with Actis and Resilient Africa for key industry stakeholders and regulators, including SEC, FIRS, NSE and PENCOM, to discuss the potential of REITs in improving investment in Nigerian real estate market.
According to him, the gross asset value of real estate in Africa was only 113 billion Euros or 1 percent of the world’s total value, despite the continent’s control of 15 percent of world’s population.
Reviewing the global performance of REITs, Baum noted that domestic and foreign investors were more attracted to markets with properly structured REITs sectors, encouraging Nigeria to develop this asset class to harness the investment opportunity.
CHUKA UROKO
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