REITS fails to excite re­gion’s in­vestors

The float­ing of prop­erty on the stock­mar­kets is bogged down

The East African - - FRONT PAGE -

By JAMES ANYANZWA

East African coun­tries are strug­gling to at­tract pri­vate in­vestors to the prop­erty mar­ket through the stock ex­changes.

Ex­or­bi­tant land prices and the high cost of con­struc­tion ma­te­ri­als have made it dif­fi­cult for re­gional govern­ments to deal with the hous­ing prob­lems.

Tan­za­nia and Kenya have an­nual hous­ing short­falls in ex­cess of two mil­lion and 200,000 units re­spec­tively, while Uganda faces a hous­ing short­age of about 2.1 mil­lion units per year, po­ten­tially of reach­ing 3 mil­lion by 2030.

A 2012 Ki­gali hous­ing mar­ket study projects the city to have a short­age of 352,669 units, a fig­ure ex­pected to hit 458,265 by 2022.

With in­ad­e­quate fund­ing for the real-es­tate sec­tor, prop­erty de­vel­op­ers are stuck with ex­ces­sive debt fi­nanc­ing, which has prompted cap­i­tal mar­kets au­thor­i­ties to al­low de­vel­op­ers to raise cheaper cap­i­tal through the stock­mar­kets, in­stead of ex­pen­sive com­mer­cial bank loans.

How­ever, pri­vate in­vestors are still re­luc­tant to put money into the prop­erty mar­ket by buy­ing shares in hous­ing projects through Real Es­tate In­vest­ments Trusts (RE­ITS).

Un­der the RE­ITS model, prop­erty de­vel­op­ers are al­lowed to sell units or shares in a com­mer­cial build­ing or a set of real es­tate projects to in­vestors through the money mar­kets.

RE­ITS are de­signed to help small and in­di­vid­ual in­vestors own a piece of the boom­ing prop­erty mar­ket.

While pol­i­cy­mak­ers are op­ti­mistic that this seg­ment will take root, com­pet­ing prod­ucts of­fer­ing rel­a­tively at­trac­tive re­turns such as listed com­pany shares, Trea­sury bills and cor­po­rate bonds are im­ped­ing its growth.

Un­der­ly­ing is­sues

“RE­ITS have not gained the mo­men­tum we ex­pected,” said Ed­ward Ki­rathe, chair- The un­der­per­for­mance of RE­ITS in Kenya and Nige­ria, who have far larger real es­tate sec­tors, is dis­cour­ag­ing. But Uganda is in a unique po­si­tion to draw lessons from Kenya’s and Nige­ria’s ex­pe­ri­ences. Ex­perts ad­vise the Cap­i­tal Uganda Tan­za­nia Kenya Ki­gali (Rwanda)

man of the RE­ITS As­so­ci­a­tion of Kenya, blam­ing the poor per­for­mance of the prod­uct on poor mar­ket­ing and public­ity.

Hosea Kili, chair­man of the As­so­ci­a­tion of Pen­sion Ad­min­is­tra­tors of Kenya, said RE­ITS are a new prod­uct that is not well known, and so “There is a need for in­for­ma­tion dis­sem­i­na­tion.”

Tan­za­nia in­tro­duced reg­u­la­tions for RE­ITS (CMS Col­lec­tive In­vest­ment Schemes and Real Es­tate In­vest­ment In­vest­ment Trust Rules) in 2011, but so far the coun­try has regis­tered only one REIT, with the value of the in­dus­try be­ing es­ti­mated at $40 mil­lion.

The only REIT in Tan­za­nia is a res­i­den­tial one — Wa­tu­mishi Hous­ing Com­pany, estab­lished in 2014 and li­censed by Mar­kets Au­thor­ity of Uganda to con­tinue lob­by­ing for pol­icy changes and sen­si­tise the pub­lic to the REIT reg­u­la­tions, so this law does not join the list of cap­i­tal mar­kets laws that have been passed over the years but have never been ap­plied. the Cap­i­tal Mar­kets and Se­cu­rity Au­thor­ity in 2015. Rwanda in­tro­duced Reg­u­la­tion No. 14 on RE­ITS in 2013, but so far there is no regis­tered REIT. Uganda gazetted its Col­lec­tive In­vest­ment Schemes (RE­ITS) Reg­u­la­tions in 2017 and is still look­ing for real-es­tate firms to list.

South Africa in­tro­duced RE­ITS reg­u­la­tion in 2013 and al­ready it has 30 regis­tered RE­ITS, with the in­dus­try be­ing val­ued at $16.1 bil­lion.

RE­ITS have been suc­cess­ful in the US, Japan and Canada while in the UK, where they were largely non-ex­is­tent un­til 2007, they face stiff com­pe­ti­tion from other in­vestor op­tions such as bonds, which pro­vide a re­turn of about five to six per cent, and eq­uity in­vest­ments, which pro­vide re­turns of about seven per cent.

In Uganda, an­a­lysts say there re­main un­der­ly­ing is­sues with the real-es­tate mar­ket that, if not ad­dressed, will hin­der the suc­cess­ful is­suance of a REIT.

Key among these is the amend­ment of tax laws that re­quire rents to be paid in Ugan­dan shillings.

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