FIABCI DISCUSSES REITS, HOUSING DEVELOPMENT RISKS AT CONFAB

provides an opportunity for such companies to free up this cash and still hold indirect interest in a portion of the assets.

“Accessibility: Investors with small amount can diversify their holdings between various geographic areas and property specialisations. Return Correlation: REITs have a lower correlation to equities than many other assets classes, providing portfolio stability for those with active asset allocation strategy.”

Other benefits, he listed are: “Transparency: REIT in Nigeria are supervised by the Securities & Exchange Commission; Regular Distributions: REITs are required to pay out at least 90% of their income to unit holders as distribution; Capital: capital stability and reliable cash flows provide for cost effective funding of investment grade real estate developments; Ancillary Benefits: Benefits of a vibrant real estate industry includes the increase in job creation as construction is labour intensive, among others.

The challenges of REITs in Nigeria, he said include: unfavorable tax regime; unlike most other jurisdictions where REITs enjoy a tax-exempt status when it distributes at least 90 per cent of its income to investors, in Nigeria, the tax laws are not explicit.

“Investors’ awareness: Inves- tors in Nigeria have little or no knowledge of REITs; Return on investment: Relatively low yields when compared to risk free government securities, thus making investments in real estate assets unattractive to investors; The cost of transferring assets from the sponsor to the REIT. This has hitherto been onerous and constrains the ability of the REIT to generate competitive returns.

However, with the introduction of the Declaration of Trust Structure (DoT), there has been a significant reduction in the charges incurred by REITs when transferring the assets from the sponsor to the REIT.”