Nigeria’s Real Estate Investment Trusts (REITs) market, once touted as a game-changer for mobilising capital into the housing and property sector, continues to lag behind regional and global peers due to the general lack of awareness and poor performance of the market. Experts highlight the need for improved policy support for investors, as well as transparency and visibility, to deepen the REITs market in Nigeria, VICTOR GBONEGUN reports.
Although Real Estate Investment Trusts (REITs) have become one of the fastest-growing investment vehicles in global property markets, Nigeria’s REITs sector remains underdeveloped, weighed down by economic headwinds, weak policy support, and limited investor participation.
While global players have harnessed REITs as a vehicle to deepen property financing, democratise real estate ownership, and attract large-scale institutional capital, Nigeria’s experience tells a different story, one marked by untapped potential and persistent structural challenges.
Across the world, the REITs market has ballooned into a multi-trillion-dollar industry. Estimates place its worth at over $4 trillion, with at least 44 countries enacting legislation to create REIT structures. In fact, more than 85 per cent of global REIT asset value is concentrated in just five countries, nearly 80 per cent of which is in the United States.
South Africa dominates Africa’s REIT landscape, with a market capitalisation of approximately $8.5 billion, while Nigeria trails at $600 million, followed by Kenya’s $300 million. Ghana, Morocco, and Egypt are laying legislative groundwork but have yet to see actual REIT listings.
Despite Nigeria’s large and growing market, with a housing deficit exceeding 20 million units and increasing demand for commercial and logistics spaces, returns on REITs have remained discouraging. Investors earn only about seven per cent on Nigerian REITs, far below the 15 per cent offered in South Africa and nine per cent in Kenya. This gap reflects both operational inefficiencies and structural bottlenecks holding back the sector’s growth.
Limited progress amid bright spots
SO far, only three Nigerian REITs, Union Homes REIT, SFS REIT, and UPDC REIT, have shown some resilience. Together, they recorded a rental income of N2.16 billion in 2023, according to the Knight Frank Africa Horizons report, which valued the Nigerian REITs market at $600 million last year.
UPDC REIT, one of the largest and most diversified, provides a telling case study.
Since being acquired by Custodian Investment, Q1 2024 was its best-performing quarter, generating N410 million from property sales. Its portfolio spans more than 100 properties, including office towers, shopping centres, residential complexes, and student hostels across Lagos and Abuja. Flagship assets include Victoria Mall Plaza in Lagos, the Kingsway Building in Marina, UAC House in Abuja, and a hostel in Pan-Atlantic University, Epe.
Financially, UPDC REIT has turned the corner. After posting a net loss of N4.48 billion in 2021, it swung to net incomes of N1.68 billion in 2022 and N3.8 billion in 2023. Union Homes REIT, with over 50 properties primarily in residential and mixed-use categories, continues to maintain a steady but modest profile. The SFS REIT is a specialist vehicle focused on prime office assets in Lagos and Abuja, owning just over 10 properties but with strong tenant bases.
While these funds demonstrate that Nigerian REITs can perform under difficult circumstances, they remain few, thinly capitalised and limited in scope compared to their global counterparts.
The structural hurdles
Industry experts point to a confluence of challenges stifling the sector. Unlike mature REIT markets, where trusts enjoy tax pass-through status, meaning income is only taxed at the investor level, Nigerian REITs risk double taxation, at both the trust and investor stages. This erodes yields and discourages large-scale participation.
Regulatory overlaps between the Securities and Exchange Commission, the Federal Inland Revenue Service, and the Nigerian Exchange also create compliance headaches. Without clear, harmonised rules and tax incentives, the market remains unattractive to both foreign and domestic investors.
Liquidity is another critical barrier. The few listed REITs are thinly traded, making it difficult for investors to buy or sell units without steep discounts. Institutional investors such as pension funds, insurers, and sovereign wealth funds, key players in global REIT markets, largely avoid Nigeria’s REITs due to these liquidity risks. Retail participation is also weak, as public awareness remains low.
Nigeria’s deep-rooted preference for direct land and property ownership further hampers REIT adoption. For many Nigerians, property is considered a generational asset, best held directly rather than through securitised structures. REITs are often perceived as abstract or risky compared to the tangibility of owning “land and blocks.”
The concentration of assets has also exposed Nigerian REITs to market shifts. Most are heavily invested in office buildings and retail malls, sectors battered by economic slowdown, remote work trends, and weak consumer spending. Vacancy rates in commercial real estate have risen, squeezing rental income. Meanwhile, underrepresented segments such as residential housing, industrial logistics, healthcare facilities, and hospitality properties, which have shown resilience globally, remain largely absent from Nigerian REIT portfolios.
On top of these structural problems, the macroeconomic climate adds to the difficulties. Currency depreciation, high inflation, and interest rates north of 20 per cent make government securities more attractive than REITs. In such an environment, investors prefer safer bets like treasury bills and bonds, further starving REITs of much-needed capital.
Stakeholders agree that reforms are urgently needed to unlock Nigeria’s REIT potential. Despite the obstacles, experts remain optimistic about Nigeria’s REIT market, pointing to rapid urbanisation, population growth, and the rising demand for affordable housing and commercial spaces as long-term growth drivers.
Reforming the tax regime to grant REITs pass-through status is seen as the most urgent step, as it would boost investor returns and align Nigeria with global practice. Regulatory harmonisation between the SEC, FIRS, and NGX could reduce compliance costs and build confidence. There is also a strong case for diversification of REIT portfolios beyond offices and malls into residential, logistics, healthcare, and hospitality assets that reflect the evolving needs of the Nigerian economy.
Public awareness campaigns could make a significant difference by educating both retail and institutional investors about the benefits of REITs as an accessible and income-generating investment vehicle would help to change cultural perceptions about securitised property ownership. Stronger disclosure and governance standards are also needed to rebuild trust in the system and create a level playing field for new entrants.
Nigeria could take cues from South Africa, whose REIT sector has flourished despite facing similar macroeconomic turbulence. In 2024, South Africa’s SA Property Index surpassed R400 billion in market capitalisation, recovering from the pandemic slump. Listed property funds there delivered a total return of 14.4 per cent, outpacing bonds, equities, and cash.
This success has been attributed to strong regulation, tax efficiency, and diverse portfolios spanning retail, office, residential, and industrial segments. Adopting similar strategies could help Nigeria reposition its REIT sector for growth.
Professor Austin Otegbulu of the University of Lagos attributes the sector’s underdevelopment largely to poor public awareness. “A lot of people aren’t aware of the opportunities that exist in funding real estate through REITs,” he explained, urging operators and professionals to ramp up advertising campaigns through mass media.
Investment banker and stockbroker, Mr Tajudeen Olayinka, echoed similar sentiments. “REITs in Nigeria still appear as an investment that not many people really understand,” he said. According to him, REITs can be a powerful tool for investors seeking regular income, but market education is lacking.
He also criticised REIT managers for failing to issue additional units or shares when investment opportunities arise. “They don’t come back to the market to give prospective stakeholders more opportunities. Expanding activities requires managers to regularly tap the market,” Olayinka argued.
Nevertheless, he sees REITs as relatively safe investments, thanks to their regulatory framework and mandatory dividend payouts. “Because they pay a minimum of 70 per cent of their profits as dividends, REITs can be worthwhile. They may not offer rapid growth, but for income-focused investors, they are ideal,” he added.
Pathways to revival
NIGERIA’S REITs market is at a crossroads. On one hand, its current size and performance are underwhelming compared to peers. On the other hand, the fundamentals, a huge housing deficit, surging urbanisation, and a growing middle class, provide a compelling case for expansion.
For now, the market remains a thinly traded niche, limited to a handful of players navigating economic and regulatory hurdles. But with bold reforms, increased awareness, and better alignment with global standards, REITs could evolve into a major financing channel for Nigeria’s real estate sector, delivering affordable housing, fuelling infrastructure, and opening the market to wider investor participation.
Olayinka added, “For income-focused investors, REITs remain a safe opportunity. But to unlock their full potential, Nigeria must create the right incentives, fix the regulatory bottlenecks, and build investor confidence. Only then will REITs truly take their place as a driver of real estate growth in Nigeria.”
