Real Estate Investment Trusts (REITs) have revolutionized property investing by allowing individuals to gain exposure without the capital intensity of direct ownership. REITs are entities that own and often manage income-generating real estate assets. By pooling funds from multiple investors, they provide a vehicle to earn dividends from property markets minus the burdens of acquiring, financing or operating real estate directly.

There are three primary types – equity REITs owning properties, mortgage REITs financing properties, and hybrid REITs doing both. REITs offer advantages like liquidity, portfolio diversification, transparency, and stable cash flows. But dividends are taxed as income, and some REITs levy high fees.

In Nigeria, REITs trade via licensed stockbrokers on the Nigerian Exchange. Despite a 15 year presence, REIT adoption lags markets like South Africa. Still, major players have emerged including UACN, Skye Shelter and Union Homes REITs. By law, REITs must pay out 90% of taxable profits as shareholder dividends.

While fund managers hold legal title, investors derive equitable title and benefits. REITs are regulated under laws like the Investment Securities Act, CAMA, Finance Act and Land Use Act. Despite vast potential, REITs remain an untapped avenue for democratizing real estate investment in Nigeria. But with continued evolution, they can deepen markets and opportunities.

The Investments and Securities Act grants authority to the Securities and Exchange Commission (SEC) to regulate collective investment schemes in Nigeria, including registering and overseeing Real Estate Investment Trusts (REITs). Under its checklist, the SEC mandates certain criteria for REITs to receive approval. It outlines the requirements for registration with the Commission:

Requirements for Registration of Real Estate Investment Trust

• Application Form SEC 6A
• Two copies of Draft Prospectus
• Two copies of Trust Deeds
• Letter of consent from the prospective parties to the trust
• Two copies each of Certificate of Incorporation and Memorandum/ Articles of Association of Managers duly certified by the Corporate Affairs Commission
• Two copies each of Certificate of Incorporation and Memorandum/ Articles of Association of Trustee to the trust duly certified by the Corporate Affairs Commission
• Two copies each of the particulars of the directors of the manager and trustees of the trust certified by Corporate Affairs Commission
• Sworn Undertaking to file evidence of the maintenance of separate Trust Accounts in a reputable bank
• Evidence that the minimum paid up capital of the Manager and Trustee complied with the requirements of the Commission as stipulated in these Rules and Regulations.

 

Requirements for the Registration of Units of Real Estate Investment Trust.

 

• The name under which the issuer is doing business and the address of its principal office
• The name of the proposed scheme
• Date of commencement
• Investment objective of the scheme
• Investment outlets
• Number of units proposed for issue.
• Nominal value per unit
• The names and address of the Directors or persons performing similar functions, the Chief Executive Officer and the Chief Accountant
• The name(s) and address(es) of brokers to the scheme
• The names and addresses of all persons owning 5% and above of any class of shares of the issuer both on record and beneficially as at the date of filing the application for registration of the trust scheme
• The amount of the proposed units of the issue to which any person specified in paragraphs (viii), (ix) and (x) have indicated intention to buy or subscribe.
• The general nature of the business actually transacted or to be transacted by the manager
• Sworn undertaking to file quarterly reports with the Commission
• Any other information required by the Commission from time to time.

 

CHALLENGES OF REITS IN NIGERIA

Awareness – Surveys reveal limited public understanding of REIT concepts and operations. Broad outreach is vital to spur investment.

Title Processing – Lengthy land title bureaucracy stifles growth. Streamlining procedures through digitization and specialized agencies could unlock capacity.

Regulations – Current rules under ISA, SEC and CAMA lack REIT-specific focus. Tailored legislation would provide better governance.

With real estate substantially driving GDP, Nigeria is forfeiting immense potential. REITs globally have fueled job creation and economic impacts. But localization is essential to maximize opportunities. Boosting awareness, modernizing title administration, and enacting purpose-built regulations would propel the fledgling market. REITs can democratize income-generating property assets for Nigerians. With concerted efforts to surmount current hurdles, this promising path can flourish.

 

REFERENCES:

• The Investment and Securities Act (ISA) 2007
• Securities and Exchange Commission: New Rules and Amendments to the Rules and Regulations of the Commission (2017).
• The Securities and Exchange Commission Consolidated Rules and Regulations (2013)
• The Companies and Allied Matters Act 2020
• The Nigeria Land Use Act 1978
• Journal of Nigerian Institute of Estate Surveyor and Valuers: An Examination of Stakeholders Views.

 

 

The information provided in this article aims solely to educate readers generally. It does not establish an attorney-client relationship with our law firm or constitute legal counsel. Please contact us directly for any specific legal assistance required.