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Things You Should Know About REITs in Nigeria

You might be wondering: Are there REITs in Nigeria? Yes, there are. They exist and are functional. REITs in Nigeria are among the oldest on the African continent, having been introduced to the market many years ago. So here are things you should know about REITs in Nigeria. 

The majority of real estate investors in Nigeria focus on purchasing physical properties. A select few choose an alternative that allows the investor to invest in a property without directly purchasing it. This is accomplished through the use of Real Estate Investment Trusts (REITs), or REITs.

Although many Nigerians are not familiar with Real Estate Investment Trusts (REITs), there are three major REITs in Nigeria, UPDC Real Estate Investment Trust, Sky Shelter Fund, and Union Homes Real Estate Investment Trust. Sky. 

What do REITs stand for?

Real Estate Investment Trusts, or REITs, are collective investment schemes that pool investment capital from investors to acquire income-producing real estate or mortgage loans, or a combination of both.

A single investor may hold one or more self-contained living units in a REIT, and the investment group takes care of managing each unit on the investor’s behalf, including upkeep, advertising vacancies, and conducting tenant interviews. The business receives a portion of the monthly fee in return for performing these management duties.

How do REITs work in Nigeria?

REITs like other stocks are traded on the Nigerian Stock Exchange (NSE) and regulated by the SEC. Investors benefit from capital appreciation and rental income generated by the fund’s real estate assets. Furthermore, they can sell their shares at a profit if the market value rises.

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Real estate investment trusts (REITs) are companies that hold real estate assets rather than simply owning physical real estate. This means you don’t have to commit the typically large sums of money required for investing directly in real estate, such as a mortgage or a property.

REIT. Real estate investment trust. Financial Market. Hand pressing button on screen.

Types of REITs

Equity REITs are real estate companies that own or manage income-producing properties – such as office buildings, shopping centres and apartment buildings – and lease the space to tenants.

Mortgage REITs (mREITS) provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities (MBS) and earning income from the interest on these investments. mREITs help provide essential liquidity for the real estate market.

A Hybrid REIT is a real estate investment trust that invests in properties and mortgage REITs. This diversified strategy aims to minimize risk while providing flexibility for REIT managers. Investors choose this option when they are unsure of the type of REIT they want to invest in.

The Pros and Cons of Investing in REITs

Another thing you should know about REITs in Nigeria is that the real estate market in Nigeria is capital intensive, largely illiquid and requires a high degree of expertise to manage developments. Investors don’t need to get involved in the day-to-day management of real estate processes.

Other benefits include tax benefits for businesses who own and operate REIT properties, ease of real estate investment, and the opportunity for investors to share in real estate ownership without the headache of property management.

One major drawback of REITs is the lack of prompt payout of earnings, which makes it challenging to continue growth in the scheme.

Additionally, since an investor can only sell their shares when they are dissatisfied with the REIT’s performance, REITs do not give stockholders the chance to control or monitor the REIT’s performance or to reduce their losses, if necessary.

7 Things to Consider Before Investing in REITs

LEVERAGE

You might be able to get finance for real estate with physical assets. 

Private mortgages are available, or you can apply to the National Housing Fund (NHF). Leveraged loans have a higher potential for profit than REITs. Generally speaking, REITs do not have access to financing, and when they do, the sums offered are small.

DIVERSIFICATION

Contrarily, investing in a REIT enables you to indirectly purchase a variety of real estate, including both residential and commercial properties. Due to capital restrictions, some property types, such as hotels and malls, may no longer have been available to individual investors, but they can now be more easily accessed through a REIT.

CONVENIENCE

You can easily invest in REITs by looking at publicly available data and deciding where to place your money, or you can engage an investment advisor to handle the research for you. You can then proceed to buy REITs through a brokerage firm.

On the other hand, purchasing and maintaining actual properties entails steps like locating a real estate agent, examining properties, negotiating prices, setting up financing, and so on.

LIQUIDITY

It may take some time to find a suitable buyer who will purchase at the price you wish to sell your investment property, particularly in a weak market. The market alone determines the pricing at which you can buy and sell REIT shares. You will get the equivalent amount of money quite shortly after selling your investments.

PROPERTY ADMINISTRATION

Physical real estate ownership demands self-management unless you hire a property manager. 

It might take a lot of time to deal with tenants and maintain the property. You give these aspects of property ownership to a professional management group when you participate in a REIT.

CONTROL

In the case of REITs, you give up control in favour of entrusting asset management to experts. 

The controlling shareholders/property managers make all decisions on your behalf. The sale, rental and development of the properties are out of your control. You can make your own decisions whenever you need to when you have direct ownership of the property.

NIGERIA’S REIT MARKET

Another thing you should know about REITs in Nigeria is that the REIT market is still growing and returns in more mature markets such as the United States or the United Kingdom may not be realized in Nigeria.

The opposite is true when it comes to directly owning real estate. Returns in Nigeria are frequently much higher than those in more western countries.

Which is preferable?

Both direct real estate investment and REIT investing have benefits and drawbacks. Investors must evaluate their choices and select the best one for them. A reasonable solution might be a mix of personally held real estate and REITs. In terms of generating wealth, purchasing real estate may be preferable. Regarding capital preservation and an easier approach to making money, REITs can be a better choice for you.

When it comes to investing in real estate in Nigeria, the best decisions are the ones that serve you, the investor. Consider your time, capital, and whether you want to be the one to deal with household issues when they arise.

Do you think we missed out on any of the things you should know about REITs in Nigeria? Let us know in the comments.

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