Finance market players invest in real estate
INSURANCE firms and pension funds are redirecting their investment portfolios towards Real Estate Investment Trusts (REITs), a move aimed at mitigating against loss of value due to inflationary pressures and ensuring growth.
Insurance and Pension Commission (Ipec) Commissioner Dr Grace Muradzikwa said in an effort to meet the obligations as well as assuring that their contributors receive valuable benefits, insurance companies and pension funds were channeling their assets into REITs.
“In an effort to preserve value from the impact of inflation, insurers and pensions funds have shifted their investment portfolios towards real assets namely properties and listed equity.
The combined share of investment property and listed equity is approximately 80 percent. Investment property is not liquid enough to enable insurers and pension funds to meet their obligations as they fall due. Therefore, the development of a secondary market for REITs will unlock liquidity of the otherwise illiquid immovable properties through unitisation of commercial real estate,” she said.
REIT is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centres, hotels and timberlands. Some REITs engage in financing real estate.
Dr Muradzikwa said channeling the basket of assets into REITs would enable pensioners and exiting members to be paid benefits in the form of units of real assets.
“This then allows, where practically possible, pensioners and exiting members to be paid benefits in the form of units of real assets (REITs), thus giving them the right to exercise the option of disposing such units when they deem fit. REITs are tradable on the stock exchange just like shares, thereby making them liquid and attractive,” she said.
Dr Muradzikwa said REITs were also going to foster growth of the insurance and pension sector through facilitating uptake of insurance as well as giving insurers the opportunity to stay afloat in business.
“REITs will assist by boosting policy holder confidence and uptake of insurance and pension product and service offerings, as consumers will be able to receive their benefits in real assets, which can track inflation, thus achieving the intended goal of value preservation,” she said.
Dr Muradzikwa added that REIT would also ensure that small pension funds and insurers have the ability to co-finance high net worth commercial projects, which ordinarily would not be possible on an individual basis.
“Currently, most of the small pension funds and insurers are invested in residential properties, which do not provide a higher return compared to commercial properties,” she said.
REITs also allow individuals to invest in large-scale income producing real estate and are tradable on the stock exchange the same way as equity, making them liquidity enough.