Real estate takes N1trn pension investment in 2023

Real Estate and Real Estate Investment Trust (REITs) took N1 trillion of pension investments in 2023, BusinessDay understands.

This marks a significant increase from previous years, reflecting the growing confidence in the real estate sector as a viable investment option, Oguche Agudah, chief executive officer, Pension Fund Operators Association of Nigeria (PenOp), said.

Agudah said pension funds have consistently been investing in real estate and REITs over the past few years, pointing out that these investments provide a stable return and help diversify the pension fund portfolios.

Read also: Here’s how pension fund assets are secured

REIT is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool capital from investors who earn dividends from real estate assets.

In 2023, N1 trillion pension investment went to real estate and REITs out of a total Assets Under Management (AUM) of N18.36 trillion.

Data compiled from the National Pension Commission and PenOp shows that investment in real estate and REITs in 2022 stood at N943.61 billion out of an AUM of N14.99 trillion.

This was a slight decrease compared to 2021, where N957.27 billion was invested from an AUM of N13.42 trillion. But despite these fluctuations, the trend shows a consistent commitment to real estate investments, Agudah said.

The year 2020 saw pension funds invest N958.35 billion in real estate and REITs, from an AUM of N12.31 trillion. This was a continuation of the steady investment pattern observed in previous years.

Going back to 2019, pension funds invested N972.83 billion out of an AUM of N9.58 trillion. “This marked one of the highest allocations to real estate and REITs, underscoring the sector’s importance in the overall investment strategy of pension funds,” Aguda emphasised.

Dave Uduanu, managing director/CEO, Access Pensions Limited, speaking on investments of pension funds in infrastructure particularly the real estate, said pension managers are interested in investing in real estate, but it has to be well structured.

Uduanu said apart from providing competitive returns, another gain for the PFAs is being able to reduce the infrastructure deficit in Nigeria.

“I am optimistic that the space is an emerging space with enormous prospects for PFAs and institutional investors,” he said.

He noted that the private equity market is a space where companies raise money outside the listed market and pension funds invest through fund managers.

“The regulation doesn’t allow us to invest directly in unlisted securities, so private equity is the only way to access unlisted securities, growing companies, infrastructure, and real estate,” Uduanu said.

The allocation to real estate has further been strengthened with the regulation of equity contribution for residential mortgage, which started in December 2023.

The first quarter 2024 data on performance of pension funds released by PenCom shows that 2,971 pension contributors via RSA have signed for equity contributions for residential mortgages with N29.2 billion already allocated.

In the first quarter period, a total of 1,390 RSA holders requested to access up to 25 percent of their RSA balances towards payment of equity contributions for residential mortgage during approvals were granted to 1,234 requests amounting to N10, 519.73 million. Out of the 1,234 applicants whose benefits were approved, 379 were from the private sector, while the remaining 855 were from the public sector.

Read also: Oyo jacks up payment of pensions, gratuities to N1bn

A chief investment officer in one of the leading PFAs in Nigeria noted that while a substantial portion of pension investments currently resides in fixed income, there’s room for greater allocation to infrastructure including real estate.

He stated, “One thing we can do better is on visible impact. One way people can truly feel the tangible impact of their pensions is in the area of infrastructure investments and real estate is key here.”