Real Estate Investment Trusts are have a huge gap to fill in Africa’s real estate markets. The REITs sector has been seen a rather slow uptake in most countries with just a handful managing to sustain the momentum, and a majority of those are in the more established South African markets.
However, experts agree that REITs can be an effective way for African real estate markets to mobilize for capital inflows as well as improving the transparency of real estate markets. According to JLL’s global real estate transparency index for 2018, only South African real estate markets have achieved transparency.
A study by the Linklaters law firm found that, between 2013 and 2018, Africa-focused real-estate funds raised only $2bn from investors, compared with $11.9bn and $4.2bn raised by private-equity and infrastructure funds.
Commenting on the matter, Grit Real Estate CEO Bronwyn Corbett said that Africa as a whole presently has “relatively undeveloped” listed public REIT markets. Corbett expects the creation of multiple REITs in major African markets over the next decade.
REITs will provide the property sector with a higher level of liquidity that is critically needed especially to institutional investors like African pension funds which typically invest a larger percentage of their funds directly in property compared to those in developed countries.
Grit says that some property investment opportunities are too large for the company’s balance sheet alone. These are a perfect match for large institutional investors and the adoption of REIT legislation will help to bring those institutions on board.
Some of the obstacles for the adoption of REITs in most markets according to Bronwyn Corbett are; the time taken to formulate and implement REIT legislations, obscure tax structures and accounting frameworks, and lack of investor familiarity with REITs.