REAL ESTATE INVESTMENT TRUST (REIT) AS A VERITABLE TOOL FOR REVAMPING THE NIGERIAN ECONOMY.

ESV Ogunsanya Elijah David

The role of real estate in the development of national economy cannot be overstated considering the significant contribution it offers developed and developing countries all over the world. The contribution of real estate investment to the economy is manifold, and encompasses benefits ranging from enhanced life quality and standard, job creation, increase income per capita and growth of gross domestic products (GDP). Real estate investment to a good number of investors is considered attractive and mostly preferred compared to other alternative investment due to its ability to appreciate in value and serve as a hedge against inflation. However, despite these qualities of real estate investment, some of its characteristics which includes high development cost, long period of pay-back, illiquidity and low yield have impacted on its competitive advantage against comparative investment medium such as shares, debentures and stock. Prior to the growing trend in economic globalization, real estate investment was faced with liquidity problems due to huge time spent in marketing properties. In the wake of the twenty first century, certain remarkable achievement paved way for real estate investment to be linked with capital market.

The possibility of having initiatives that aimed at securitizing real estate, created efficient and adequate machinery to finance and address the liquidity issues earlier encountered though the incorporation of capital market instruments into real estate such as bond, mortgaged-backed securities and real estate investment trust (REITs). REITs provides benefits that exceeds actual property ownership as it operates like a closed-ended mutual funds which seek to raise funds through the issuance of shares, bonds and commercial papers backed with the intention of borrowing from financial institutions on hand, while undertaking investment in real estate debt and equity on the other hand. REITs is essentially a form of security that is traded like stock on the major exchange market to facilitate investment in real estate directly by way of properties or mortgage. Securitization as a process of transforming illiquid asset into security through financial engineering have presented itself as a veritable means of boosting economic growth of nations. Developed countries like the United States have benefited greatly having realized about $180 billion dollar in business through asset-backed securities (ABS) which comprised a variety of innovative financial products including the securitization of real estate properties. Nigeria with a population of over 200 million stands a chance to revitalize its economy through real estate securitization seeing the rate of urbanization which have influenced the rising demand for housing,

The presence of REITs in Nigeria since 2007 as a tax efficient vehicle was envisaged to allow companies engaged in property investment to offer shares to the public. By trading real estate security, the Nigerian Stock Exchange will provide opportunity to expand and deepen the capital market as the use of REIT will not only provide access to good and affordable homes but will also provide long-term income stability for investors. The establishment of an enabling system that promotes the initiatives of unit trust will give Nigeria the ability to generate returns from real estate assets listed as shares in the exchange market. In the literatures of urban political economy, REITs have been viewed as a vehicle for financializing real estate as it brings the world of finance and real estate together. The government through the inputs of trained real estate professionals like Estate Surveyors and Valuers can make informed decision based on business cycle of property markets. The globalization of property investment has the potential to attract foreign investors who may choose to buy shares with hopes of gaining appreciable dividends in return.

ESV Ogunsanya Elijah David is an Abuja-based Estate Surveyor and Valuer