Slow growth is, perhaps, the best expression with which to capture how the Real Estate Investment Trusts (REITs) market is progressing in Nigeria given that only six real estate firms have been able to float the trust and only three out of the six have listed theirs in the country’s stock exchange in the last 10 years when the first trust came to the market.
This places Nigeria a distant second to South Africa which, alone, controls 27 out of the 32 REITs market in Africa with a transaction volume estimated at $265 million which is a small fraction of the approximately US$1.7 trillion global REITs market capitalization.
Skye Shelter Fund opened the market in Nigeria with its modest ₦2 billion REITs floated in 2007. It was followed by Union Homes and Sun Trust 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 have had impressive showing in the market, a situation experts blame on unfavaourable taxation, regulatory policies and poor corporate governance.
Unlike its counterpart in developed economies, the REITs market has not done well in Africa, but not without encouraging story. The market here is presently valued at US$29 billion and is available in only four countries including Ghana, Nigeria, South Africa and Kenya.
Altogether there are only 32 REITs in Africa with South Africa being the largest market, having 27 REITs and Nigeria second with only three that are listed in the stock exchange. Oscar Onyema, CEO, Nigerian Stock Exchange (NSE), recalls that 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.
Experts blame this slow growth on unfavaourable taxation, regulatory policies, poor corporate governance, and issues regarding the quality of assets available for which Ayo Ibaru, Director, Real Estate at Northcourt, suggests that to reach performance levels of national economic significance, adjustments need to be made.
Tolu Sokenu, a Principal at Actis, affirms that “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”.
In spite of the drawbacks, Onyema says 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.
