The Nigerian REITs market is underdeveloped – making it a choice location for foreign investors. With a total market capitalization of $151 million, or 0.36% of the local stock market.
The globally recognised real estate-focused West African Property Investment (WAPI) Summit which recently took place in November 2017 provided delegates with an insight into a real estate sector that is set to rebound strongly in 2018.
This low investment as identified during this summit was as 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.