A combination of factors including increased traction in technology application, growing awareness and investment interests have put the real estate investment trusts (REITs) market on growth path.
A more transparent, liquid and accessible REITs market structure in line with global best practices is underway following proposed changes in the reporting and valuation of REITs and other investment schemes.
These anticipated changes will also come through awareness creation, investor/market education, etc and the Nigerian Stock Exchange (NSE) is on the vanguard of this effort. According to the authorities of the exchange, strategic initiatives are being put in place to promote and create the enabling environment for sustainable development of REITs in Nigeria and sub-Saharan Africa.
The REITs market in Africa, especially in Nigeria, is not yet developed and the reasons are many. Part of those reasons border on issues of taxation and regulation which are major impediments to the growth of the market due to their imperfections.
Oscar Onyema, NSE’s CEO, explained at a REITs summit in Lagos recently that the proposed changes, which will be implemented over the next three (3) quarters of 2017, were aimed at promoting transparency, disclosure, visibility and liquidity of listed REITs and closed end funds in the market.
“The changes will also make it easier for existing and potential investors to access information required to make investment decisions thereby contributing to the growth products in the market”, he added.
Onyema explained further that REITs and Closed End Funds listed on the Exchange will be reclassified from the main board to a separate board specially created for them under the equities market.
“Through our growth agenda, the NSE will continue to engage other regulators, market operators, investors and other stakeholders towards delivering a culture of service excellence, intimate knowledge of clients, innovative products and world class market infrastructure”, he assured.
In the last decade, in spite of intervening economic challenges, especially in the last couple of years, the real estate sector in Nigeria has recorded steady and consistent growth. The PricewaterCoopers (PwC) in its report titled, ‘Real Estate: Building the Future of Africa,’ predicted that Nigeria’s real estate investment will rise by about 49 per cent, from $9.16 billion to $13.65 billion in 2016.
It attributes this to a growing middle class driving demand for residential property development, and indirectly, retail, industrial and commercial real estate development. It is expected that this growth can be accelerated by deploying capital market tools such as REITs, listing of real estate companies, and creation of real estate instruments to unlock capital in the sector.
Since 2007, when the Securities and Exchange Commission (SEC) introduced the framework for the establishment of REITs, the Nigerian investing public has been given an opportunity to invest in a diversified portfolio of choice real estate assets. The market has seen the floating of six REITs though only three of them including UPDC REITs, Skye Shelter Funds and Union Homes REITs are listed.
Whilst the Nigerian market may not be as developed as other emerging markets such as Mexico, South Africa and Singapore, this asset class has definitely come to stay. Onyema revealed that, at the moment, Nigeria has about N40 billion in REITs market capitalisation listed on the NSE and a total of N96 billion in the construction and real estate sector of our equity market.
As against the US where REITs started in 1960 and the market has grown by almost 150 percent, in Africa generally, the market has not done well, though not without encouraging story. African REITs market is presently valued at US$29 billion and is available in only four countries including Ghana, Nigeria, South Africa and Kenya.
“There are only 32 REITs in Africa with South Africa being the largest REIT 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”, Onyema said, adding, “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 sees the African real estate markets being well positioned for a long-term growth phase, especially in Nigeria, given the significant supply deficit across the continent. He believes that the current state of this asset class and the huge opportunities the sector holds make the push for favourable policy frame work, good tax regime and corporate governance necessary.
BY CHUKA UROKO