By Modupe Gbadeyanka
A Lagos-based investment firm, FSDH Research, has identified Real Estate Fund (REF) has the solution to the shortage of housing in Nigeria.
In its weekly report, FSDH Research said government can use REF as an investment vehicle to address the housing deficit and encourage economic activity in the real estate sector.
Housing is a basic need of all human beings. Other basic human needs include food and clothing. Irrespective of their social or financial status, everyone deserves and needs access to quality and affordable housing.
Sadly, in Nigeria, there is a significant shortage of affordable housing. The housing gap is estimated to stand between 17 and 20 million units.
This means that Nigeria needs to build between 17 and 20 million housing units to ensure that Nigerians have this basic human need.
In monetary terms, Nigeria may require between N170 trillon to N200 trillion to bridge the housing gap if each unit costs N10 million.
Given the rising population in the country, the housing shortage keeps increasing.
Meanwhile, developments in the real estate sector of the Nigerian economy, which is where activities that will close the housing shortage will take place, have not been impressive.
Economic activity in the real estate sector has been consistently contracting since the first quarter of 2016.
FSDH Research is of the opinion that with the REF, investors (both retail and high net worth) can create wealth in real estate through regular investment in the fund without investing directly in the brick and mortar.
It said REF is an investment vehicle that pools resource together to invest in real estate, therefore allowing individual investors to partake in the benefits of the underlying properties.
In Nigeria, REFs are traded on the Nigerian Stock Exchange (NSE), just like stocks/shares. They can therefore be purchased through stockbrokers, just like other stocks/shares. Every REF must have a fund manager that manages the fund to ensure the best return to shareholders.
REFs are real estate working for the investors. The holder of a REF will earn a share of the income from the real estate investment through dividends without actually having to buy, manage or finance any housing projects.
REFs are required to distribute at least 90 percent of their taxable income as dividend. As a result, it provides constant income for shareholders. There is no minimum amount to invest in a REF so it is suitable for all investors.
FSDH Research noted that REFs have not gained much popularity in Nigeria in terms of the numbers available and their size relative to the size of the Nigerian economy.
There are currently only three REFs listed on the NSE; Skye Shelter Fund, Union Homes Real Estate Investment Trust (REIT) and UPDC Real Estate Investment Trust.
According to the Securities and Exchange Commission (SEC), the total value of the assets of all three funds stood at N43.74 billion as at January 18, 2019, representing about 0.03 percent of Nigeria’s total Gross Domestic Product (GDP).
FSDH Research notes that these assets have recorded weak growth over the last five years, perhaps due to the slow activity in the real estate sector in general. The inadequate information on how REFs work and how investors can take advantage of the investment opportunities in them may also explain why REFs are not growing as they should.
FSDH Research believes REFs can be used as one of the measures to boost activity in the Real Estate sector. As patronage for REFs in Nigeria increases, more funds would be available to buy and develop more real estate properties.
Consequently, the real estate sector would begin to experience increased activity. The REFs can also concentrate on affordable housing units which will help to bridge the housing deficits in the country. Therefore, it is a win-win situation for all the stakeholders. FSDH Research notes that the real estate sector can also stimulate economic activity in other sectors of the economy such as cement manufacturing, plastic and iron fabrication. This would help to create job opportunities for skilled and unskilled labour, within and outside the sector.
FSDH Research also notes that the real estate sector is labour-intensive, therefore with adequate investment and incentives in the sector, the high unemployment narratives in Nigeria can change.
