Benefits of investing in REIT, by FSDH AML

FSDH Asset Management Limited has stated  that Nigeria’s housing challenges will be partly addressed with increased investment in Real Estate Investment Trust, REIT, as it is currently enabling the construction of properties for different classes of individuals and corporate organisation in different parts of the country.

According to the firm, given the huge capital that is required for direct real estate investment, most investors are unable to achieve a real estate portfolio that is diversified across real estate types, such commercial real estate, residential real estate among others and geographical location.

Speaking at a Real Estate Investment Trust seminar organized by FSDH Asset Management Limited, held in Lagos yesterday, a member of the company, Tolulope Faboyede explained that the benefits of investing in a REIT include the fact that they provide stable and regular income to investors, especially as REITs typically pay out 90 per cent of the total income realised on an annual basis. 

She further stated that REITs allow investors to be beneficial owners of real estate assets, without having to make huge capital investments, as is typical of direct investment in real estate.

“South Africa started this three years ago and they have gone far because they created enabling environment for it to grow. REIT should be taxed in the hands of beneficiaries not the REIT.’

She, however, stated that despite the fact that REITS are not common in Nigeria, investors are gradually becoming aware of the benefits of investing in a REIT and have taken advantage of the opportunities provided by the UPDC REIT.

She explained that the  seminar was organized to enable stakeholders to brainstorm on how to move investment in the REIT forward.

She added that the focus was to educate the stakeholders on investment opportunities and challenges of investing in REIT in Nigeria. 

“The stakeholders will also benefit from the first hand experience of both local and international leading practitioners.”

The Managing Director UACN Property Development Company Plc, Hakeem Ogunniran urged federal government to create legislation that would provide enabling environment for investment in Real Estate Investment Trust (REIT) fund to provide against double taxation.

The legislation, according to Ogunniran would enable fund ‘not to be taxed in the hand of the unit holders and in the hands of the entity as well’.

He noted that Nigeria’s housing challenges will be partly addressed with increased investment in Real Estate Investment Trust, REIT, as it is currently enabling the construction of properties for different classes of individuals and corporate organisation in different parts of the country.

He explained that given the huge capital that is required for direct real estate investment, most investors are unable to achieve a real estate portfolio that is diversified across real estate types, such commercial real estate, residential real estate among others and geographical location.

He, however lamented that there is no enabling legislation, which create REITs as a flow through transparent vehicle, which provides against double taxation, so that the income is not taxed in the hands of the entity and taxed in the hands of the unit holders as well.

“What a  REIT does is to pull funds from several investors. When you have that pull of funds, it enables developers to off load their current development unto the REIT, then they have money immediately to undertake further developments. 

“But as a developer, when you develop, you need a vehicle to which you are going to offload your development, so that cash comes in. it also gives people who ordinarily do not have access to invest in certain real estates and to be part owners of those real estates. We had over one thousand investors, so those investors are now part owners of those assets and when those assets generate income, it is distributed to every body. “Under the rules, a REIT is obliged to distribute 90% of its income. From this, all the investors of the REIT partake of it.

The REIT is early and there are only three REIT in Nigeria but the fourth one is in the market now and as they relax the regulatory framework, we are going to have many more and we can have a proper basis for accessing those REITs.