FIABCI Discusses REITS, Housing Development Risks at Confab

Real Estate Investment Trusts (REITs) can play significant role in real estate financing in Nigeria as it does in other country if well structured.

The Managing Director of FSDH Asset Management Limited, Olumayowa Ogunwemimo stated this at a forum organised by the International Real Estate Federation FIABCI, Nigerian branch, in Lagos, recently.

FSDH Asset Management is an asset management company in Nigeria and is registered with the Securities & Exchange Commission to act as a Fund/ Portfolio Manager and Corporate Investment Adviser.

Ogunwemimo observed that “the Nigerian real estate sector in comparison with the real estate sector in other climes is not yet fully developed. The growth of the real estate sector has mostly been affected by unavailability of funds to finance projects. The complexity and capital intensive nature of real estate developments/transactions demands proper and adequate funding to make it realisable.”

The major sources of real estate finance in Nigeria, he said are: equity; real estate developers; private equity companies; Insurance companies; governments; Individuals; Pension funds; debt; Primary Mortgage Institutions; Commercial Banks; Merchant Banks; and Development Finance Institutions.

Ogunwemimo, whose presentation was on ‘Real Estate Investment Trusts (REITs) as an Alternative Source of Real Estate Financing in Nigeria’, said in addition to the traditional sources of finance to the real estate industry REITS have significantly financed real estate developments in other countries.

He described REITs as a form of collective investment scheme regulated by the Securities & Exchange Commission, which pools capital from investors and uses same in the acquisition of income generating real estate, mortgage loans, or a combination of both. The portfolio of underlying assets is placed under professional management to maximise returns to the investors. He said there are three types of REITs: Equity REIT, Mortgage REIT and Hybrid REIT, explaining that “Equity REITs invests their assets in and own real estate assets. Their income is derived from rent received and capital appreciation on the assets; Mortgage REITs deal in investment and ownership of short or long term property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their income is derived from the interest they earn on the mortgage loans; Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages. Their income comes from rentals, capital appreciation, interest, and loan placement fees.”

The three REITs listed on the Nigeria Stock Exchange are: UPDC REIT, Equity REIT of 2013, worth N30.68bn; Union Homes, 2010 Hybrid REIT worth N13.94bn and Skye Shelter 2008 Hybrid REIT worth and N2.32bn.

Stating the benefits of REIT, he said “Portfolio Diversification: Real estate investment offers an alternative to equities and fixed income securities, especially for investors interested in diversification.

“Liquidity: REITs are relatively liquid assets (when compared to direct investment in real estate) that can be sold fairly quickly to raise cash or to take advantage of other investment opportunities. A large percentage of property developers assets are still tied up in real estate assets. A REIT