The
globally recognised real estate-focused West African Property Investment (WAPI)
Summit which recently took place between the 28th and 29th of
November 2017 provided delegates with insight into a real estate sector that is
set to rebound strongly in 2018.
During
the summit, two of the continent’s foremost real estate analysts presented a
collaborative white paper: Nigeria’s Real Estate Investment Trust (REITs)
market, which provides cause of optimism in one of the most underinvested and
marginalised markets of the Nigerian stock market.
The
white paper is authored by Stanbic’s head of real estate finance for West
Africa, Adeniyi Adeleye, and global commercial real estate provider JLL’s
advisory head for Sub-Saharan Africa, Thomas Mundy. It provides an analysis of
underlying structural weaknesses that have contributed to the historical
negative performance of this market.
Despite
its existence for more than ten years, the Nigerian REITs market is
underdeveloped with only three established and with a combined market
capitalisation of $151 million, or 0.36% of the local stock market.
This
low investment is a result of Nigeria’s deficit of A-grade real estate compared
to similar urbanising environments combined with an inherently volatile and
non-diversified economy overly reliant on crude oil. These factors have created
cycles of boom and bust which have negatively impacted the real estate sector
and crucially investor confidence. An additional factor cited was a lack of
assurance on ambiguous ‘tax pass through’ laws, that have not provided comfort
to institutional investors, both local and foreign, resulting in a REITs market
that has failed to develop to its potential, which new reforms hope to address.
Mundy
and Adeleye predict that an evolving and reformed REITs market will strengthen
and deepen capital markets. It will also assist in providing greater
transparency and data to a traditionally opaque market, which has resulted in
mispricing and undermining confidence in real estate assets. Additional benefits
stated include greater diversification of portfolios to help break
concentration risk and result in increased exposure for Nigeria’s pension funds
to the property market. Currently, the pension fund exposure is 0,36% compared
to South Africa’s pension fund exposure to REITs which stands at 2.6%.
Provided
that regulatory improvements take place coupled with the sustainable creation
of assets to reduce the supply gap in Nigeria, Adeleye and Mundy are optimistic
that these changes will lead to a vibrant REITs market, which will transform
the real estate sector and the larger economy.
No comments:
Post a Comment